On 21 November 2023, the government announced a 9.8 % rise to the national living wage from April 2024, with the mandatory rate of hourly pay increasing from £10.42 to £11.44 per hour. It has also lowered the age at which people qualify for the national living wage, from 23 to 21 years. The Department for Business and Trade estimates that these increases will directly benefit 2.7 million workers.
Last month, the Living Wage Foundation also announced that the voluntary real living wage will also be increasing hourly pay by 10% next year. This change will benefit over 460,000 workers in the UK and will mean that those covered will see pay rise to at least £12 an hour, while those in London will get £13.15.
These increases come against a backdrop of a cost of living crisis in which inflation peaked at just over 11% – the highest in 40 years.
There are, however, important differences between the government’s national living wage and the voluntary real living wage. In this article, we take a look at these terms and explain the difference between them, as well as outlining what the government’s plans are for the national minimum wage from April 2024 onwards.
When was the National Minimum Wage Legislation Introduced?
The National Minimum Wage Act 1998 was created to raise the income of the lowest paid; it provided the first minimum wage to be binding on all employers. In 2016, the government rebranded a higher rate band for 25-year-olds as the ‘national living wage’. Since April 2021, more younger people have been eligible for the wage as the threshold was lowered to include anyone aged 23 and over. The ‘minimum wage’ applies to apprentices and workers aged 16-22.
The government’s latest changes mean that from April 2024, eligibility for the national living wage will be further extended by reducing the age threshold from 23 to 21.
The National Living Wage
The national living wage is incorporated in the UK national minimum wage law. At present, it is the minimum pay per hour that most workers in the UK who are aged 23 and over are entitled to by law.
The current rate for the National Living Wage is £10.42 an hour. However, the government has now announced that this will rise to £11.44 from April 2024 and will apply to most workers who are aged 21 and over.
Irrespective of the size of the company, all employers are obliged to pay it and any companies that do not can be fined by the HM Revenue and Customs (HMRC). The hospitality, care and retail sectors make up a large number of minimum-wage jobs, although they are found in many other parts of the economy too.
Most workers, including agency workers and people on zero-hour contracts, are entitled to the national living wage. However, certain groups, such as self-employed people, company directors, volunteers, members of the armed forces, people living and working in a religious community and prisoners do not qualify.
The Minimum Wage
Currently, workers under 23 and at least of school-leaving age are paid the national minimum wage according to their age group. This is at a lower rate than the national living wage. Apprentices and those aged under 18 are entitled to £5.28 per hour, 18-20 year-olds get £7.49 and 21-22 year-olds get £10.18.
However, from April 2024, those aged 21 and 22 will now be eligible to receive the same amount as those earning the national living wage – £11.44 per hour. The minimum wage will continue to apply to 18-20-year-olds and those under 18 and will be increased to £8.60 and £6.40 respectively from April 2024.
| Current NMW rate April 2023-March 2024 | NMW rate from April 2024 | |
|---|---|---|
| National Living Wage (aged 23 and over) | £10.42 | £11.44 |
| Aged 21 and 22 years | £10.18 | £11.44 |
| 18-20 years | £7.49 | £8.60 |
| Under 18 and Apprentices | £5.28 | £6.40 |
How are The Rates Calculated?
The rates are decided each year by the government, based on the advice of an independent state-funded advisory group, the Low Pay Commission, which will take economic conditions into account. The new minimum wage rate changes come into effect on 1st April every year.
What is the Accommodation Offset?
If an employer provides accommodation for their workers then this can be taken into account when calculating the living wage or minimum wage.
No other company benefit that workers receive can count towards the legal minimum wage to be paid, including a car, food, or child care vouchers. Similarly, if workers need to buy things to do their job, like tools, or a uniform, the employer must make sure that any such costs do not cause their wages to drop below the living wage or minimum wage for that pay reference period.
What Happens If an Employer Does Not Pay The National Living Wage or Minimum Wage?
A failure to pay the national living wage or minimum wage can lead to the offending employer being investigated by HMRC and potentially issued with a fine. In June 2023, the government named several firms, including W H Smith, Marks & Spencer and Argos, who had failed to pay the national minimum wage. Over 200 companies faced penalties of nearly £7 million and were told to reimburse 63,000 workers for breaches dating back over a decade.
A worker who has not been paid the national minimum wage can also submit a claim in an employment tribunal. Furthermore, there is legal protection from being dismissed or receiving unfair treatment in circumstances where a worker becomes entitled to a higher rate of minimum wage, asserts their right to a minimum wage or makes a complaint to HMRC or a claim to an employment tribunal.
What is the Real Living Wage?
More than 430,000 workers across the UK benefit from the voluntary real living wage, which is established by the Living Wage Foundation charity. It is a more generous alternative to the government’s rate and aims to provide a wage based on the actual costs of living, such as rent, food and bills. It is calculated based on the cost of a basket of services and goods that is illustrative of the minimum acceptable living standard.
More than 13,000 employers have signed up to be Living Wage-accredited employers, including Nationwide, Chelsea FC, Ikea, Aviva and Google, as well as thousands of smaller businesses. As a result, 1 in 9 employees are now working for an accredited Living Wage-accredited employer. Unlike the government’s national minimum wage rates, which vary according to age, the real living wage applies to all workers over the age of eighteen, regardless of age, experience or employment status.
The real living wage is currently £10.90 an hour and £11.95 in London to account for higher living costs in the capital. However, it was announced on 24 October that from 2024, it will increase by 10% to £12 an hour, and the London living wage will reach £13.15 an hour. Employers will need to implement these changes as soon as possible and by no later than 1 May 2024. If you need advice concerning your obligations under the National Minimum Wage legislation or have any questions concerning HMRC enforcement, contact our experienced team via email.
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