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Bookkeeping  •  Business Services  •  Small Business

Changes to National Minimum Wage

By RJP LLP on 28 April, 2016

An extension to the National Minimum Wage (NMW) was introduced on 1st April 2016 in the form of the National Living Wage (NLW); in accordance with this all employees aged 25 and over, whether they work full time or part time, must be paid at least £7.20 an hour, rising to £9 per hour by 2020.

The NMW continues to apply for those under the age of 25, but for those over the age of 25, employers are now obliged to pay the additional top up to the value of the NLW.

What are the current National Minimum Wage and Living Wage Rates?

Age Rate per hour
Over 25 (now the NLW Rate) £7.20
21 – 25 £6.70
18 – 20 £5.30
16 – 17 £3.87
Apprentices £3.30


Adding further complexity to an already complicated system, the NMW and NLW should not be confused with the Living Wage. This is set independently by the Living Wage Foundation and is calculated according to the basic cost of living in the UK. Employers can choose to pay the Living Wage on a voluntary basis - it is £8.25 per hour nationwide, and £9.40 per hour in London.

Many high profile employers pay at least this amount, for example, KPMG, Barclays and local authorities, together with a number of smaller companies. It is possible to find out whether other employers (and competitors) are paying their staff the Living Wage by checking if they are registered with the Living Wage Foundation


Potential impact of NLW for small businesses

Firstly, employers need to ensure they are paying their employees the correct minimum rates of pay in all instances. Penalties apply for non-compliance which are 200% of the amount owed, unless any arrears are paid within 14 days, subject to a maximum fine of £20,000 per employee.

Secondly, there is the choice of increasing rates of pay to the Living Wage.

The introduction of the NLW has resulted in some controversy, with the Office for Budget Responsibility warning that around 60,000 jobs will be lost as a result and that the total number of hours worked will reduce. In addition, a number of companies, mainly in the services sector, have as a result effectively reduced the total benefits they offer their workers to offset the cost of the new rates of pay. For example, it is reported that the food and drink chains Café Nero, Zizzi and EAT have removed benefits such as free food and paid breaks for those on the NLW. Weatherspoons on the other hand has said that it will maintain all its staff benefits.

These reports are corroborated in the findings of a survey conducted by the Federation of Small Business. It identified that SMEs were anticipating negative effects as a result of the financial impact of the NLW, with businesses in the wholesale, retail, accommodation and food services being the most hard -hit;

  • 38% of firms expect to slow down their hiring and increase prices, rising to 54% when the rate rises to £9 per hour by 2020;
  • Just 6% of firms said the increases would have a positive impact on their business;
  • 41% said they would cut staff hours;
  • 31% would reduce staff numbers;
  • 29% said they would cancel or postpone planned investments; and
  • Almost a third of businesses owners (29%) expected to absorb the cost through reduced profits.




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