Employers must now pay workers over the age of 25 at least £7.20 an hour.
The national living wage (NLW) replaces the current national minimum wage (NMW) of £6.70 an hour for people who are 25 or over.
This is not a simple increase of the adult rate of NMW as individuals between 21 and 24 won’t be affected by the change. All other NMW wage rates and bands remain the same until October 2016.
National living and minimum wage hourly rates
| Age | Hourly rate until October 2016 | Hourly rate from October 2016 |
| 25 and over | £7.20 | £7.20 |
| 21 -24 year old rate | £6.70 | £6.95 |
| 18 – 20 year old rate | £5.30 | £5.55 |
| 16 – 17 year old rate | £3.87 | £4.00 |
| Apprentice rate* | £3.30 | £3.40 |
*For apprentices aged 16 – 18 or those 19 or over in their first year.
Calculating pay
NMW calculations don’t just involve an hourly rate. Employers will also have to include:
- income tax and national insurance contributions (NICs)
- wage loans or advances
- overpaid wages
- any accommodation provided by the employer.
Penalties
Employers are responsible for identifying eligible workers and paying the NLW and face penalties if they fail to comply.
HMRC charges 200% of arrears for failing to pay the NLW or the NMW up to a maximum of £20,000 per worker. Penalties are halved if the employer pays within 14 days.