Back in June, more than 200 companies faced fines of up to £7 million due to paying their staff below the National Minimum Wage (NMW) and National Living Wage (NLW). And now, a report by The Low Pay Commission finds that a third of underpaid workers from 2012 to 2019 continued to be underpaid in the following year. Paying your employees at least the NMW/NLW is a legal requirement. But what are the current NMW/NLW rates and how can their calculations be affected?
Current rates of NMW/NLW
The current rates for the 2023/24 tax year are detailed in the table below. These rates change on the 1st of April each year.
The hourly rates are dependent on an employees’ age, and/or if they are an apprentice.
Apprentices are entitled to NMW for their age if they are both:
- Aged 19 or over.
- Have completed the first year of their apprenticeship.
| 23-year-olds and over | £10.42 per hour |
| 21 – 22 -year -olds | £10.18 per hour |
| 18 – 20-year-olds | £7.49 per hour |
| 16 – 17-year-olds Apprentice aged 19 or under or aged 19 and over in the first year of their apprenticeship | £5.28 per hour |
What’s included in minimum wage calculations
Minimum wage calculations can be more than just the hours an employee has worked. Things that must be included in the minimum wage calculations are:
- Income tax and national insurance contributions (these are deducted from the employee’s gross wage).
- Wage advances or loans.
- Repayment of wage advances or loans.
- Things the worker paid for voluntary such as meals.
- Employer provided accommodation (if it is above the offset rate).
- Penalty charges for a worker’s misconduct.
Accommodation offset – the effects on NMW/NLW
This is where a worker lives in accommodation provided by their employer, who can then charge them for that accommodation. How much the employer chooses to charge for the accommodation affects the minimum wage calculations.
If the accommodation is free, then the employer adds the offset rate to the employee’s pay.
If the accommodation rate is charged at or below the accommodation offset rate, then this does not have an effect on the employee’s pay.
If an employer charges more than the offset rate, then the difference between the employer’s charges and the offset rate must be deducted from the worker’s pay for minimum wage calculations. This may cause their hourly rate to drop below the NMW.
The following all form part of an employee’s overall accommodation charges.
- Rent.
- Charges like gas, electric, furniture.
- Laundry.
Accommodation offset rates also change every tax year. Accommodation offset rates for 2023/24 tax year are £9.10 per day (£63.70 per week).
Salary sacrifice and NMW/NLW
Salary sacrifice is when an employee gives up part of their wage for a non-cash benefit. This benefit reduces the employee’s tax and NI contributions.
Some salary sacrifice schemes available are:
- Childcare vouchers (if eligible).
- Bike to work scheme.
- Pension sacrifice.
If an employee has a salary sacrifice, the employer must ensure that the amount the employee has requested to sacrifice won’t take them below the NMW/NLW.
Underpayments – next steps
Unfortunately, underpayments can happen. Below are some steps on what to do if you have underpaid your staff:
Firstly, gather the appropriate information.
- The age of your employee.
- How many hours your employee works per week.
- Are they an apprentice and have they completed their first year?
- Do they have a salary sacrifice?
Secondly, calculate the employee’s hourly rate.
- Take the employee’s weekly earnings.
- Deduct any appropriate amounts (salary sacrifice, voluntary payments, etc).
- Divide this by the number of hours your employee works.
Thirdly, compare and pay any arrears due.
- Compare your calculated hourly rate to the current NMW/NLW rates.
- If you have underpaid the employee calculate how much you owe them by deducting what they have been paid from what they were owed.
- Arrange to pay what is due to the employee and correct their amounts going forward.
If you have any questions on NMW/NLW or have any questions regarding any of the points we have covered, please contact the payroll team at payroll@ct.me.
