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The difference between National Living Wage and National Minimum Wage

The National Living Wage is set to change in April 2017... or was it the National Minimum Wage? There seems to be confusion between the two, so here's an explanation – with the Living Wage thrown in as an extra. Prepare to be bewildered.
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British employers and staff alike have recently found themselves confused with the terms Living Wage, National Living Wage and the National Minimum Wage. We wanted to provide some clarification on what they meant.

The National Minimum Wage

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The NMW is exactly as it sounds. It is the minimum pay per hour workers are entitled to by law and is reviewed yearly by the government. The rate for each age group in the UK is different and has been regulated by the Low Pay Commission since 1999.

Of course, workers need to be of school leaving age (16) to receive the benefits of the NMW. In 2016, those aged 18 and under were entitled to £4 per hour, 18 to 20-year-olds were allowed £5.55, 21 to 24-year-olds got £6.95 an hour and those over 25 received £7.20 of hourly wages.

This rate changes every October and for those under the age of 25, the minimum wage will change accordingly this year.

YEAR 25 AND OVER 21 TO 24 18 TO 20 UNDER 18 APPRENTICE
2017 £7.50 £7.05 £5.60 £4.05 £3.50

 

The National Living Wage

This is the point where people get confused. Despite using the term Living Wage, the NLW has nothing to do with it (further explained below). It’s basically a new minimum wage rate – the NMW rebranded if you like. Exactly the same thing with a different name.

Launched under former chancellor George Osborne in 2015, it represents the government’s aim of raising the wages of those aged 25 and older to £9 an hour by 2020. The decreed hourly rate will change each year in April until it reaches the £9 target.

The first hop in pay is set to take place on April 2017, whereby the current rate of £7.20 will increase to £7.50 an hour. In 2018 you’ll need to pay staff £8.05, followed by a £8.50 hourly rate in 2019. As a result of this, some one million workers will directly receive a pay rise.

The Living Wage

The Living Wage shouldn’t be confused with the government’s National Living Wage – one difference being that it isn’t enforceable by law. Companies can voluntarily adopt it, but know that it means paying a higher sum of money to staff.

Here’s why. PromotLiving wageed by the Living Wage Foundation and calculated annually by the Resolution Foundation, it’s a benchmark and recommendation of what it will take now – not years down the line – to improve living standards. TUC general secretary Frances O’Grady explained: “Unlike the government’s NLW, the real Living Wage is based on a review of the evidence on what is currently happening to people.”

The Living Wage rate currently stands at £8.45 an hour, with the London Living Wage separately calculated as being £9.75 per hour. And while the Living Wage Foundation welcomed the government’s NLW, it claimed the lowest level of pay currently estimated for a comfortable London life was already higher than what the NLW will be in 2020.

Image: Shutterstock

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About Author

Shané Schutte

Shané Schutte is a senior reporter at Real Business, with a particular specialism in employment and business law, human resources, information technology and sales/marketing.

Real Business