Understanding the difference between these three different categories of pay is imperative for big and small businesses as not correctly paying employees can result in large penalties.
To eliminate any confusion on this topic we are going to outline the three main terms relating to wages within this article. When it comes to payroll TopSource aims to keep things as simple and as easy to understand as possible!
The National Minimum Wage
The National Minimum Wage in the UK is predominantly based on your age and also takes into account whether or not you are an apprentice. Every year it is reviewed and set by an independent body of the government known as the Low Pay Commission.
Every employee and worker is entitled to the National Minimum Wage, including part-time, flexible hours, agency workers and those who are in an apprentice scheme.
There are different levels of pay from school leavers (16 years) upwards Remember, it doesn’t matter if you are a small or a big company, irrespective of your size you have to meet the minimum wage when paying your employees.
There are a few exemptions of the National Minimum Wage such as self-employed people who are running their own business, company directors, volunteers or voluntary workers and family members of the employer living in the employer’s home.
The National Living Wage
The National Living Wage (NLW) is the maximum government enforceable wage, the highest band of National Minimum Wage that is paid to anyone from the age of 25 (as long as they are not in the first year of an apprenticeship) and onwards.
The National Minimum Wage was introduced in the Summer Budget 2015 and implemented from April 2016.
Although the term “Living Wage” is used for this, it has nothing to do with The Living Wage and is actually just the National Minimum Wage renamed for workers who are aged 25 and over. This can be extremely confusing as The Living Wage already existed, still does and is completely different.
The Living Wage
The Living Wage sometimes referred to as The Real Living Wage is an hourly wage based on the actual basic costs of living in the UK. The Living Wage is calculated every year by The Living Wage Foundation (a campaigning organisation). It has no legal grounding and is not enforceable by law and totally voluntarily paid by employers.
However there are already over 3,900 accredited Living Wage employers in the UK and that number is growing. If an employer wants to become an accredited Living Wage employer they have to be paying every single employee the Living Wage and have a plan in place to include any regular on-site subcontracted staff as well.
The National Living Wage is based on a proportion of earnings, the aim of the government is achieve 60% of median earnings this year (2020), this results in the National Living Wage being lower than The Living Wage.
In many people’s opinions The Living Wage is the much more realistic option over The National Living Wage as the way The Living Wage is calculated is much more well-rounded way and includes the actual costs of living, such as food, rent and utility bills, this is reflected in the fact that The Living Wage is higher in London than in the rest of the UK.
Consequences of not paying National Minimum Wage, National Living Wage or Living Wage
HMRC currently in the enforcer of non-payment and they issue a notice of underpayment. When an employer breaches the minimum wage legislation HMRC will calculate the arrears of pay to be paid and the penalty is set at 100% of total underpayment of the National Minimum Wage. The minimum penalty is £100 and the maximum penalty that is charged to employers is £20,000 per worker, in addition to this the employer could face being banned from being a company director up to 15 years! HMRC will also name and shame employers who are penalised, so it will be on record for future employees to see.
If the employer pays the unpaid wages within 14 days the penalty could be reduced by 50%. In contrast to this, if the employer does not comply with the notice of underpayment issued from HMRC the enforcement officer can issue civil proceedings hunt he civil courts or in the employment tribunal to recover the sums that have not been paid, if the debt remains unpaid HMRC has steps they can take to enforce the debt and can go as far as to escalate and actually prosecute the employer to seek a criminal conviction.
How TopSource can support you
TopSource has set up a fast-track payroll service to make this easy, guaranteeing a simple on boarding experience to support compliance in as little as four weeks.
Simply contact us to find out more.
If you’re a TopSource customer, we can provide you with a separate payroll for off-payroll workers. You can email firstname.lastname@example.org or call 0203 6915303.