skip to navigationskip to main content

Our services

Request a callback

Get in touch

NATIONAL LIVING WAGE – IS YOUR BUSINESS READY FOR 1 APRIL 2020?

From 1 April 2020, nearly three million workers are set to benefit from increases to the National Living Wage (NLW) and minimum wage rates for younger workers, according to estimates from the independent Low Pay Commission.

From 1 April 2020, the NLW will rise from £8.21 per hour to £8.72 per hour.

The new rates should mean a pay rise of some £930 over the course of the year for a full-time worker on the NLW. Younger workers who receive the National Minimum Wage (NMW) will also see their pay boosted with increases of between 4.6% and 6.5%, dependant on their age, with 21-24-year-olds seeing a 6.5% increase from £7.70 to £8.20 an hour.

Employers need to make sure they are ready for the new rates.

The compulsory NLW is the national rate set for people aged 25 and over. The NLW is enforced by HMRC alongside the national minimum wage which they have enforced since its introduction in 1999.

Generally, all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:

  • employees
  • most workers and agency workers
  • casual labourers
  • agricultural workers
  • apprentices who are aged 25 and over

The NMW is the minimum pay per hour that most workers are entitled to receive by law. The rate to which they are entitled depends on a worker’s age and whether they are an apprentice.

The rates from 1 April 2020, the NMW will rise across all age groups, including increases:

  • from £8.21 to £8.72 for over 25-year-olds
  • from £7.70 to £8.20 for 21-24-year-olds
  • from £6.15 to £6.45 for 18-20-year-olds
  • from £4.35 to £4.55 for under 18s
  • from £3.90 to £4.15 for apprentices

NMW calculations

Payments that must be included when calculating the NMW are:

  • income tax and NICs
  • wage advances or loans and repayments
  • repayment of overpaid wages
  • items that the worker has paid for, but which are not needed for the job or paid for voluntarily, such as meals
  • accommodation provided by an employer above the offset rate (£7.55 a day or £52.85 a week)
  • penalty charges for a worker’s misconduct

Some payments must not be included when the NMW is calculated.

These are:

  • payments that should not be included for the employer’s own use or benefit, for example, if the employer has paid for travel to work
  • items that the worker has bought for the job and has not been refunded for, such as tools, uniform, safety equipment
  • tips, service charges and cover charges
  • extra pay for working unsocial hours on a shift

Entitlement

There are a number of people who are not entitled to the NMW, including:

  • self-employed people
  • volunteers or voluntary workers
  • company directors
  • family members, or people who live in the family home of the employer who undertakes household tasks

All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.

Compliance

Businesses should make regular checks to ensure compliance with NLW/NMW obligations including:

  • checking that they know who is eligible in their organisation
  • taking the appropriate payroll action where relevant
  • letting employees know about any new pay rate
  • checking that staff under 25 are earning at least the right rate of NMW

The penalty for non-payment of the NLW can be up to 200% of the amount owed unless the arrears are paid within 14 days. The maximum fine for non-payment is £20,000 per worker.

The government is currently committed to raising the NLW to £10.50 per hour by 2024 on current forecasts.

Employers need to take action over the coming weeks to ensure that they are ready for the increase in rates on 1 April 2020 and beyond.

Subscribe to our newsletter

Our monthly newsletter contains a round up of the latest tax news and updates of what's happening at APH Accountants Ltd

As a subscriber you will automatically receive our newsletter direct to your inbox

Please read our Privacy Policy before signing up