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Minimum Wage Explained For Small Businesses

Minimum Wage Explained for Small Businesses

If you’re a small business or you’ve just started your business journey, you probably have a lot to consider. 

As soon as you start hiring employees, your workload will likely decrease – but you should either hire somebody to deal with payroll and/ or your accounts or brush up on your facts. 

The minimum wage depends on the age of the employee – and although you can pay your employees more than minimum wage, you can never pay less than minimum wage. 

How much do you know about the National Minimum Wage? Keep reading to learn more about minimum wage, specifically for small businesses. 

What Is National Minimum Wage?

National Minimum Wage (NMW for short) is the absolute minimum wage that you should pay an employee legally. 

NMW is determined by the role (whether they’re an apprentice or not), and their age. There are different rates for each age bracket. Typically, the younger the employee, the lower their minimum wage will be. However, this is capped at 23. 

All workers are entitled to minimum wage by law – which includes flexible workers, agency workers, part-time workers, full-time employees, those on an apprenticeship, and those on a zero-hours contract.

However, there are some exceptions as to who is legally entitled to minimum wage. For example:

  • Those under the age of 16 (under school leaving age)
  • Those who are self-employed
  • Directors of companies
  • Volunteers 
  • Prisoners
  • Those working in a religious community 
  • Those on a government pre-apprenticeship 
  • Those in education taking on work experience or placements

Minimum Wage Rates

Currently, the National Minimum Wage for apprentices is £4.30, although this will go up to £4.81 in April. For under 18’s, the NMW is £4.62, which will also rise to £4.81 in April. Anyone aged 18 to 20 should currently receive a minimum of £6.56 per hour, which will go up to £6.83 per hour. 

You should ensure those aged 21 and 22 are currently receiving £8.36 per hour minimum, which will rise to £9.18 in April. Employees aged 23 and over should be receiving a minimum of £8.91, which will go up to £9.50 in April. 

The rates change every April and are advised by Low Pay Commission, an independent body. This post is only relevant if you’re reading this before April 2023.

What If I Don’t Pay My Workers Minimum Wage?

There’s absolutely nothing wrong with paying your employees more than minimum wage or opting for the National Living Wage instead (which is encouraged). However, if you’re paying your employees below minimum wage, then you’ll come into some problems. 

Firstly, your employee’s will not be happy and will almost definitely find a better work environment and a better paying job. Secondly, you’ll be breaking the law, and you’ll most likely be taken to a tribunal and/ or investigated by HMRC. 

If you’re investigated, you’ll be fined a maximum of £20,000 per worker that’s been underpaid. You’ll also be required to pay what’s owed to your employees. You may also be publically named and banned from being a company director for up to 15 years.

To avoid making this mistake, it’s always best to have somebody deal with your accounts and deal with all things payroll, which includes ensuring everything is HMRC-compliant. If you’re based in the North West, click here about payroll CIS tax.

What About National Living Wage?

National Living Wage was introduced back in 2016 for workers over 25, and it has now been implemented for those over the age of 23. It’s essentially the minimum income that somebody can meet their basic needs on. However, living wage is not the same as a subsistence wage. 

It’s the highest band of NMW, so you should pay your employees this if they’re 23 years old or older.

Living Wage Rates

Currently, the National Living Wage is £8.91, although this is going to raise to £9.50 in April 2022. All workers aged 23 or over should be paid the National Living Wage. 

Have You Got Any Questions?

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