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The National Living Wage
The national Living Wage (NLW) in the UK is the minimum wage payable to workers aged 21 and over.
The minimum wage a worker should get depends on their age and if they're an apprentice. Workers are entitled to the NLW if they're 21 and over.
The National Minimum Wage (NMW) is the minimum pay per hour to which almost all workers are entitled.
It does not matter how small an employer is, they must pay the correct minimum wage.
Wage band | Current rate (from 1 April 2024) |
---|---|
Age 21 and over (National Living Wage) | £11.44 |
Age 18 to 20 | £8.60 |
Under 18 | £6.40 |
Apprentice | £6.40 |
The Low Pay Commission (LPC) is an independent body that advises the government about the NLW and the NMW. In 2024, the government accepted the LPC's recommendations to increase the NMW rates by the following:
The National Living Wage and other minimum wage rates
2024 rate | Annual increase (pence) | Annual increase (per cent) | |
---|---|---|---|
National Living Wage (21 and over) | £11.44 | £1.02 | 9.8 |
18-20 Year Old Rate | £8.60 | £1.11 | 14.8 |
16-17 Year Old Rate | £6.40 | £1.12 | 21.2 |
Apprentice Rate | £6.40 | £1.12 | 21.2 |
Accommodation offset | £9.99 | £0.89 | 9.8 |
Source: Low Pay Commission consultation 2024 - GOV.UK (www.gov.uk)
The NHS and NLW
Since the NLW was established, the NHS has continued to remain compliant with the NLW and the table below demonstrates the yearly position of the NLW rate set by government and the hourly rate of pay at the bottom of the agenda for change structure (band 2).
Current position:
Year | National Living Wage hourly rate | Band 1 (closed) and band 2 entry level hourly rate |
---|---|---|
2020 | £8.72 | £9.21 |
2021 | £8.91 | £9.49 |
2022 | £9.50 | £10.37 |
2023 | £10.42 | £11.45 |
2024 | £11.44 | £12.08 |
How to calculate National Minimum Wage - a guide for employers
The NMW is calculated using an hourly rate and applies to all eligible workers even if they are not paid by the hour. For employers, this means that regardless of how someone is paid, employers need to work out their equivalent hourly rate to ensure they are being paid at the legal minimum wage.
There are a number of steps employers need to take to ensure they are calculating NMW pay correctly. We have developed an infographic which identifies the steps you need to follow. Further information for each step is highlighted below.
We have also published a set of frequently asked questions (FAQs) which were covered in a recent webinar we held on NMW and its interaction with salary sacrifice arrangements. The FAQs are split into themes and are reflective of the most popular questions asked by employers.
Pay reference period
The pay reference period can cover any period of time up to one calendar month, but never more than that. For example, for someone paid weekly the pay reference period is one week, and for someone paid every two weeks the pay reference period is two weeks.
A worker must be paid at least the minimum wage for the time worked in each pay reference period.
Work type
A worker is an individual who is working or ordinarily working in the UK under a contract, and who is over compulsory school age. Employers need to consider the following key areas that could help establish whether and individual is a worker or not:
- they have written, oral or implied contract
- they personally have to attend work (or work from home) with disciplinary sanctions being in place if they do not
- they get something of value in return for this work, like money, benefits in kind or a promise of future work/payment
- they are not self-employed.
Most workers are entitled to the minimum wage, but there are some exemptions.
There are four different work types that make up the basis of NMW calculations. It is important for employers to first establish which worker type each staff member is, then to work out their equivalent hourly rate to ensure they are being paid at least the NWW.
Work types:
Working time
For NMW purposes, anytime an employer requires a worker to be somewhere or to be doing something, it is usually classed as working time.
This includes any periods of time before or after a shift for example:
- Getting dressed into a uniform, PPE or equipment at the place of work.
- Completing paperwork, admin tasks or training outside of normal working hours.
- Handover meetings/team meetings which fall outside of a worker's general shift pattern.
- Travel time - employees working in the community or whose role requires them to travel should be counted as working time for NMW purposes, excluding home to work commutes.
The pay elements that count for NMW
What does count towards NMW pay?
- The pay or salary that the worker receives for the hours worked.
- Performance related bonus - for example annual bonus or quarterly bonus.
- Commission - if a worker receives commission, they cannot be salaried for minimum wage purposes, but the commission payments still count towards the calculation.
There are some elements of pay which do not count for minimum wage purposes.
Wrongly including an element of pay that doesn't count, for example an extra premium overtime, can result in it appearing that the minimum wage is being paid when in fact it is not.
What doesn't count towards NMW pay?
The following payments, or elements of a worker's pay, made by an employer do not count towards minimum wage pay:
- tips, gratuities, service charges and cover charges
- overtime and shift premia
- allowances for example travel allowance, food allowances, additional duties allowances (unless they are fully consolidated into the workers salary)
- payments by an employer to reimburse a worker's expenses
- benefits in kind
- loans
- advances of wages
- pension payments
- lump sums on retirement
- redundancy payments
- rewards under staff suggestions schemes
- shares and share options.
In the NHS it is common practice that employees are paid at a higher rate than their standard rate for working unsocial hours at evenings, weekends, bank holidays. Other examples include shift overtime where staff work longer than a certain number of contracted hours. The high cost area supplement (HCAS) are additional payments staff receive for working in London and the surrounding areas. Based on the NMW legislation the above are considered salary premium, therefore would not be included in the calculation of pay for NMW purposes.
How payments and deductions impact pay for NMW
Payments and deductions in connection with work will always reduce NMW pay. NMW legislation does not differentiate between gross/net deductions. Some specific examples are highlighted below:
- Uniforms/dress code deductions or payments - for example if the worker is required to buy some black shoes as part of their employment specific to the role this will reduce their pay for NMW purposes.
- Car/transport deductions or payments where having the car is a requirement of the role - e.g. Fleet Solutions schemes.
- Deposits/deductions for fobs, passes, keys if there is a requirement for staff to have these.
- Admin charges - for example, an admin charge levied by the employer on the back of a facilitated payment from the worker to a third party.
Own use and benefit deductions
Deductions for employers 'own use and benefit' will always reduce NMW pay.
The term own use and benefit refers to:
if there is a deduction where the employer holds or uses the money as they wish, or the deduction is used to pay an employers liability.
This will be deemed for the employers own use and benefit, and will reduce the workers NMW pay. It does not matter if the worker agrees to or receives preferential rates in this circumstance.
In the NHS some common own use and benefit deduction examples are listed below:
- Deductions for car parking fees where NHS trusts own the car park.
- Deductions for cars provided to workers where the arrangement/liability lies between NHS trust and car provider (not salary sacrifice).
- Deductions for additional holiday purchases where the payment is taken throughout the year as a new deduction (outside of salary sacrifice).
- Deductions for electronic goods that are owned by NHS trusts. If the liability lies with the NHS trust and then they give them out to staff who then have a net deduction come from their pay.
While deductions for own use and benefit will reduce NMW pay, a payment from worker to employer will not reduce NMW pay.
This is because the NMW legislation says that a deduction from pay for own use and benefit will reduce a workers NMW pay, but a payment from a worker to their employer in the same circumstance will not reduce it.
Example: car parking fees
As long as there is a requirement for the worker to take up the service, (they can choose whether they want to take up the car parking or not), then a payment (for example an invoice or direct debit) for car parking fees will not reduce NMW pay where a deduction from salary would.
Below is an example of the difference between a deduction for 'own use and benefit' and a payment work in practice for the same scenario.
Salary sacrifice
Salary sacrifice arrangements are where an employee agrees to reduce their pay in return for a new/enhanced non-cash benefit, which benefits from a full or partial exemption from tax or NICs (National Insurance contributions) or both.
Salary sacrifice is not recognised in the NMW legislation, therefore a reduction in pay is a contractual agreement which means that the new, lower amount of pay is what is considered for NMW purposes.
Salary sacrifice is a pay reduction therefore, will always reduce NMW pay.
Steps employers can take to ensure they remain compliant
For more information about salary sacrifice schemes please see our dedicated web page.
Accommodation deductions
Where an employer provides accommodation to a worker, there is a government set 'accommodation offset' added to the workers NMW pay. The daily rate is reviewed every year and it is currently £9.99. If an employer charges more that the offset amount for accommodation, it will reduce NMW pay by the difference between the two.
It is important for employers to note that it does not matter whether there is a gross or net deduction, or whether the employer simply charges the worker by any other means. If the accommodation is provided by the employer any costs related to the provision of that accommodation, which are above the accommodation offset rate, will reduce the workers NMW pay in the period where the charge occurs.
Example: a worker is provided with living accommodation by their employer.
The employer charges the worker £500 per month for the accommodation.
The offset is currently £299.70 in a 30-day month.
This means the workers NMW pay will be reduced by £200.30 (the difference).
Certain deductions are allowable therefore the following are ignored for NMW purposes:
- income tax and NIC (National Insurance contributions)
- contractual deductions relating to conduct
- advance of wages - subject to conditions
- recovery of overpayment of wages (accidental)
- pension
- payments not deemed in connection with employment or own use and benefit
- voluntary payments by the worker for the purpose of good and services from the employer
- accommodation (if less than offset rate)
- trade union subscriptions
(This list is not exhaustive but covers the most common scenarios)
National Minimum Wage FAQs
Worker type
Working time
Salary sacrifice arrangements
Deductions and payments
Other
If you would like to contact us or have any questions, please email the reward team.