The significant rise in National Minimum Wage (NMW) in the UK coming into effect in April 2022 will affect any employer who engages workers at, or close to, minimum wage levels. Employers will be wise to consider in advance which employees will be affected, both those who will need to have their pay increased due to the increase in the NMW rate itself, and where there will be a need to maintain differentials with other employees.

The statutory minimum wage for workers aged 23 and over is called the National Living Wage (NLW). The age threshold for the NLW was lowered from 25 to 23 in April 2021.

From April 2022 the NLW increases from £8.91 to £9.50 per hour.

The National Minimum Wage (NMW) rate for 21-22 year olds will increase to £9.18, narrowing the gap with the NLW, in line with the government’s aim to see this age group receiving the NLW by 2024.

The rises for all age groups are set out in the table below:

The apprentice rate applies to apprentices who are aged under 19 or in the first year of their apprenticeship. If they are aged 19 or over or have completed the first year of their apprenticeship, the NMW for their age applies.

The NMW applies to both employees and casual workers. It applies whether an employee is hourly paid or paid an annual salary, and whether they work full time or part time. It also applies where piece work is done.

The average hourly pay in each pay reference period (between a week and a month depending on how often they are paid) must be at least the applicable rate. Given the significant increase in the rates for April 2022, it is important to check that salaries are compliant. For example, a 23 year old working 40 hours per week will need a salary of at least £19,760 to meet minimum wage. Where salaries are close to minimum wage level it is important that any additional hours worked are paid to avoid the average pay falling below NMW level.

Rest breaks taken do not count towards hours for NMW purpose. If breaks are not paid, the contract should specify this so that it is clear what hours are paid.

Tips cannot be counted towards NMW, neither can salary premiums paid for particular hours (e.g. night work or work on bank holidays), or most benefits in kind such as meals or fuel. If accommodation is provided this can be offset against minimum wage up to a prescribed level. Be aware that deductions from wages for expenditure in connection the employment, such as for a compulsory uniform, will reduce the pay for NMW purposes. There are other exceptions and special circumstances which it is beyond the scope of this article to detail and on which further advice may be needed.

Record Keeping Consequences of non-compliance

An employer is required by law to keep records sufficient to establish that it is paying workers their NMW entitlement, and to allow an employee access to these records. To “refuse or wilfully neglect” to pay minimum wage, or to fail to keep records, are criminal offences, although prosecution is rare.

A worker can enforce their entitlement to NMW through a claim in the Industrial Tribunal (NI) or Employment Tribunal (GB) for breach of contract or unlawful deduction from wages.

Compliance with NMW is enforced by HMRC. They may investigate an employer’s NMW compliance either following a report made to them, or by proactively targeting employers where they judge there is a high risk of non-compliance.  They can enforce the worker’s entitlement by issuing a notice of underpayment or suing on the worker’s behalf. A notice of underpayment requires payment of a financial penalty which will be the total of the amounts for all workers, the amount for each worker being 200% of the underpayment due to them, subject to a maximum of £20,000. It should be noted that that maximum is per employee and not the total maximum penalty.

The government also operates a scheme whereby offending employers are “named and shamed”  - details published in a press release which is posted on the government website. There are some grounds on which an employer can successfully object to such publication. However, there is a significant risk of adverse publicity and damage to reputation.

If you have any concerns or questions about compliance with minimum wage requirements, or how you may be affected by the rise, please get in touch for specific advice.