Minimum Wage in UK - Frequently Asked Question

Is there a separate legislation relating to minimum wages in the UK?

The UK National Minimum Wage Act (NMW) came into force in April 1999. Annual increases take place on 1 October each year. The NMW applies to "workers" (e.g. employees, temporary agency workers and those who are self-employed for tax purpose but not running their now businesses). There are relatively few exemptions from the UK NMW - armed forces, ministers of religion, some charity workers who receive no remuneration, and servants and au-pairs who live as part of the family.

Do one or more minimum wages exist that is/are determined by law?

There are four rates (adult aged 21 and above, 18-20, 16 -17, and apprentices under the age of 19 or in the first year of training.

At what level are these minimum wages determined at?

The NMW Act (1998) specifies that the government cannot set different rates for different geographical areas or different industries. The NMW Apprentice Rate applies to all apprentices under the age of 19 and to older apprentices in the first year of training. No other variations by skill are permitted. The NMW Development Rate is for 18-20 year olds, the NMW Youth Rate is for 16-17 year olds (16 year olds must be above the statutory school leaving age, which falls in the 1st summer after the 16th birthday.

On what basis is minimum wage calculated?

The UK NMW rates are hourly pay rates . There are no minimum or maximum legal work hours related to the wage. It's just a minimum for each hour's work. UK follows the EU working time directive, but workers can opt out of it (theoretically their boss can't make them opt out).

Are governmental bodies, employer and/or trade union representatives involved in minimum wages setting?

The government is advised on all aspects of the NMW by the Low Pay Commission (LPC). This body consists of 9 commissioners (3 trade union, 3 business and 2 academic pay experts. The LPC is supported by a secretariat of about 10 people and is able to commission 8 or 9 research projects each year. The LPC also conducts a similar number of 2-day commissioner visits around the UK every year. It takes written evidence in September, consults a 2-day oral evidence hearing in November and finalises its report to government in February. The government normally accepts the LPC's recommendations on the NMW rate increases. The NMW Act 1998 set up the Low Pay Commission (LPC). This is strictly speaking a QUANGO, or quasi-governmental body. The Confederation of British Industries always represented on the LPC. They are joined by one commissioner with a corporate background and one representing small business. The TUC is always represented on the LPC. The other two commissioners come from unions with a direct interest in the NMW.

How are upratings (adjustments) of minimum wage/s decided upon?

The LPC recommends rates to Government. Government usually accepts.

How frequently is the fixed component of minimum wage updated?

Fixed component of minimum wage is updated annually.

What is/are the yardstick/s on which minimum wage upratings are based?

This is the closest fit to reality of the LPC process, but actually the Commission looks at earnings, inflation, productivity, employment and unemployment, along with a range of less tangible factors. The commission tries to find an increase that can be sustained without having significant detrimental economic side effects. Note that the LPC does not consider what would be needed in order to provide a decent standard of living.

What is National Poverty Line?

Click here to know the national poverty line in context with Minimum Wage, living wages and actual wages. Select the currency (Euro or national currency) to know national poverty line.

How is minimum wages compliance regulated?

NMW is subject to dual channel enforcement. The law is actively enforced by the UK's statutory revenue and customs body (see below), but individuals and their trade unions can also take cases to Employment Tribunals and the County Courts. The lead ministry, BIS, contract enforcement to Her Majesty's Revenue and Customs, who regularly recover £3-£4 million per year in under payment for low paid workers.

Which legal sanctions can be applied in compliance is lacking?

Fines are rare in the UK. They are limited to aggravated cases. There have only been 9 prosecutions since 1999. The maximum fine is £5,000 per offence, but fines of £2,000-£3,000 are more common. Employers must pay arrears to worker at the current NMW rate. (NMW cases may examine underpayment dating back for up to 5 years in Scotland and 6 years in the rest of the UK. Government press release all information in the public domain, but this is quite limited. In practice this means that they press release the judgements of Employment Tribunals and County Court cases where the employer has resisted paying arrears - maybe 12 or so per year. However, government has also established legal powers to name employers paying civil penalties (these are not usually in the public domain). All employers caught underpaying the NMW must pay a civil penalty. HMRC can levy this penalty without taking the employer to court, but the employer can go to court to appeal against the penalty. The penalty matches the amount that HMRC consider that the employer owes to their workers, subject to a minimum threshold of £100 and maximum limit of £5,000 per offence. Civil penalties may be reduced by 50% for prompt payment.

Are sanctions often being applied?

All employers caught underpaying are subject to a civil penalty (see above).

Are employer and/or trade union representatives involved in compliance procedures?

Trade unions can take NMW cases to the Employment tribunals (informal labour court). As employment tribunals have tight deadlines they also take cases to the county court. Trade unions also feed information to HMRC, who take action based on a risk assessment of the information received.

To whom/Where can individuals complain, if they think they are earning less than minimum wage?

As set out above trade unions may take cases for their members. As set out above, HMRC actively enforces the NMW.

Which month of the year is minimum wage rate revised in UK?

Minimum Wage is revised October of every year.