What is the difference between the National Minimum Wage and the National Living Wage?

What is the difference between the National Minimum Wage and the National Living Wage?

You have your own creative agency business, and you’ve just hired your first apprentice. You’re excited to have them join your team, but you’re also mindful of ensuring they’re fairly compensated for their work.

This is where the UK’s National Minimum Wage (NMW) and National Living Wage (NLW) come into play.

The NMW is the minimum hourly pay you’re legally required to pay your workers, regardless of their age or experience. It’s like a baseline, ensuring everyone gets a fair wage for their time.

For example, if your apprentice is under 23, you’d pay them the NMW, which is currently £9.50 per hour (December 2023).

Now, let’s say your apprentice turns 23. They’re no longer a newbie; they’ve gained valuable skills and experience. That’s when the NLW steps in.

The NLW is a higher minimum wage rate specifically designed for workers aged 23 and over. It’s a recognition of their increased responsibilities and the higher cost of living.

So, once your apprentice reaches 23, you’d start paying them the NLW, which is currently £10.10 per hour (December 2023).

In essence, the NMW is like a stepping stone for younger workers, while the NLW is a more substantial wage for those with more experience. Both serve the important purpose of ensuring that everyone receives a fair and decent pay for their work.

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3 key differences summarised

  • Age: The NMW applies to workers of all ages, while the NLW applies only to workers aged 23 and over.
  • Rate: The NMW is a lower rate than the NLW. The current NMW rates are:

The rates that will apply from 1 April 2024:

Apprentice rate £6.40

16-17-year-olds £6.40

18-20-year-olds £8.60

21-22-year-olds £11.44

23 and over £11.44

The current (as at December 2023) NLW rate is £10.42 for workers aged 23 and over.

  • Purpose: The NMW is a baseline minimum wage to ensure that everyone receives a fair wage for their work. The NLW is a higher minimum wage specifically designed for workers aged 23 and over, in recognition of their increased responsibilities and the higher cost of living.

Why you might not want to pay full-time staff on a casual basis

Legal Issues

Casual workers are entitled to certain employment rights, such as the National Minimum Wage (NMW) and paid holiday leave.

However, they may not be entitled to other benefits that full-time staff enjoy, such as sick pay, pension contributions, and redundancy pay. This can lead to legal challenges if casual workers feel they are being treated unfairly.

Financial Issues

Paying full-time staff on a casual basis can also be expensive for businesses. This is because casual workers are typically paid at a higher hourly rate than full-time staff, to compensate for the lack of benefits. Additionally, businesses may incur extra administrative costs, such as processing multiple payrolls.

Reputational Issues

Paying full-time staff on a casual basis can also damage a company’s reputation. It can be seen as a sign that the company does not value its employees or that it is not committed to fair employment practices. This can make it difficult to attract and retain top talent.

Case Study: Highlife Coffee 

Highlife Coffee, a large coffee house, decided to pay its full-time staff on a casual basis. This led to a number of problems, including:

High staff turnover: Staff were unhappy with the lack of benefits and security, and many left the company to find better jobs.

Increased recruitment costs: Highlife Coffee had to spend more money on recruiting new staff to replace those who had left.

Legal challenges: Several casual workers took legal action against the company, claiming that they were being treated unfairly.

The company eventually reversed its decision and started paying its full-time staff on a full-time basis. This helped to improve staff morale, reduce staff turnover, and improve the company’s reputation.

Conclusion

Paying full-time staff on a casual basis is a risky strategy that can have significant legal, financial, and reputational implications. Businesses should carefully consider the potential consequences before making a decision to pay their staff on this basis.

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Repercussions from HMRC

If you are found to be paying staff on a casual basis to avoid PAYE commitments, HMRC could take the following action:

  • Issue you with a penalty. The penalty could be up to 300% of the PAYE that you should have paid.
  • Charge you interest on the unpaid PAYE. You will also be charged interest on the unpaid PAYE from the date it was due to be paid.
  • Take you to court. If you refuse to pay the penalty or interest, HMRC could take you to court.

In addition to the financial penalties, you could also damage your reputation if you are found to be avoiding PAYE commitments. This could make it difficult to attract and retain staff and customers.

What you should do

If you are concerned that you may be avoiding PAYE commitments, you should speak to an accountant or tax advisor. They can help you to assess your situation and take the necessary action to comply with the law.

It is also important to keep accurate records of all your staff, including casual workers. This will help you to prove that you are paying them correctly and avoid any problems with HMRC.

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