At the start of 2021, there were more than 5.6 million small businesses in the UK—5.5 million were small (0 to 49 employees) and 35,600 medium-sized (50 to 249 employees).1
Employers are broadly free to offer the pay they feel appropriate to attract and retain employees. However, regardless of the business size, the law states they should pay the minimum wage, at least. But what is the correct minimum wage? How does it differ from the national living wage, and can pay have an impact when it comes to staff retention?
What Are The National Wage Rates?
The National Minimum Wage (NMW) is the minimum pay per hour, currently £9.18, which almost all workers are entitled to, regardless of the business size. Workers don't need to have a contract of employment to be eligible for the NMW. However, it does not apply to anyone who's self-employed or working as a volunteer.2
The National Living Wage (NLW) is higher than the NMW, £9.50 per hour, and applies to workers over 23. The NLW was initially introduced in 2016 by the Government with the aim of reaching 60% of median earnings by 2020. This target has since been increased to reach two-thirds of median earnings by 2024, at which point the age threshold is set to reduce to 21.2
|National Living Wage
Unlike the NMW and NLW, which are statutory, the Real Living Wage (RLW) is a voluntary wage rate. Over 11,000 businesses in the UK pay it as they believe their staff deserve a wage which meets everyday needs. Based on the cost of a collection of goods and services, the RLW applies to anyone working over 18. The hourly rate is currently £10.90 across the UK and £11.95 in London.3
Will These Rates Change?
Because NMW increases yearly in April, businesses that use it as a basis for their employees' pay can expect to pay their workers more each year.
The current NMW and NLW rates have been in effect since April 2022, but the Low Pay Commission (LPC), the independent public body that advises the Government on them, estimates the NLW to reach £10.32 in 2023 and £10.95 in 2024 (all workers aged 21+).4
There are calls from the TUC for the NMW to be increased to £15 an hour by 2030.5
What Records Need to be Kept for Minimum Wage Purposes?
There are no strict requirements, but the onus of proving that you have paid the minimum wage is on you. Employers should hold sufficient records of hours worked and wages paid for a minimum of three years to evidence they have paid workers at least the NMW. If one of your workers (or ex-workers) claims they have not been paid enough, it's not up to them to establish they are correct; it is up to you to prove you are.
Are There Penalties for Failing to Pay the Minimum Wage?
A qualifying worker paid less than the NMW would be legally entitled to be paid arrears by his employer.
If you failed to comply with an enforcement notice, you would be served a notice of underpayment, requiring you to pay the arrears to each named employee. You'd also receive a financial penalty of 200% of the unpaid wages owed to workers—a maximum of £20,000 per worker who has not been paid the NMW—unless the arrears are paid within 14 days.6
Linking Wage Rates to Staff Retention
Wages are not necessarily the only factor in someone taking a job. Location, hours and other features all play a part. However, a worker looking at minimum wage roles may be more inclined to take—and remain—working for a business that offers NLW, or better still, RLW. A survey carried out by The Living Wage Foundation, working with Cardiff Business School, found that 75% of the businesses implementing the RLW said it had increased employee motivation and retention rates.7
Check You're Paying the Correct Wage to Your Employees
You can use Government NMW and NLW calculators to check you're paying your employees the correct rate and that you haven't underpaid them for previous years.
Visit the GOV.UK website and use their minimum wage calculator.