The UK National Minimum Wage is set to increase in April 2022, coming into effect before the start of the new tax year. Low-paid workers aged 16 and over will see a percentage increase to their wage, with claims that the average worker will now receive £1,000 more a year. Keep reading to find out the details and how this will affect your business.

In this article we will be covering:

• Is the minimum wage increasing in 2022?
• Who is entitled to minimum wage?
• Why is the minimum wage being increased?
• What is the minimum wage in the UK?
• What do employers need to do?
• How your business can stay compliant

Is the minimum wage increasing in 2022?

Yes. As of 1st April 2022, the National Minimum Wage and National Living Wage will increase. The new rate for UK workers aged 23 and over will be £9.50, up from £8.91, and the rate for 21-22 year olds will increase to £9.18. For under-21s, the rates will vary.

Difference between minimum wage and living wage

The National Minimum Wage and National Living Wage are not the same.

The National Living Wage is calculated based on a percentage of average earnings and only applies to over-23s. The National Minimum Wage is the legal minimum wage that nearly all workers are entitled to, where the figure depends on the worker’s age and if they’re an apprentice.

Alternatively, the ‘real living wage’ is altogether a different rate. The ‘real living wage’ is calculated by the Living Wage Foundation based on the cost of living, and is not a legal requirement for employers. The current ‘real living wage’ is £9.90, or £11.05 for workers in London.

Who is entitled to minimum wage?

To be entitled to the National Minimum Wage, an individual must be at least the school leaving age (16 years old) or aged 23 and over to get the National Living Wage.

A worker is still entitled to the correct minimum wage if they are:

• Part-time
• An agency worker
• A casual labourer
• A disabled worker
• A foreign worker
• A trainee
• An apprentice

A worker is not entitled to a minimum wage if they are:

• Self-employed, running their own business
• A company director
• A volunteer
• A member of the armed forces
• Younger than the school leaving age

You can find out more about who is or isn’t entitled to a minimum wage on the Gov.uk website.

Why is the minimum wage being increased?

Each year, the Low Pay Commision (LPC) provides recommendations to the Government around the National Minimum Wage.

The LPC’s 2022 recommendations were influenced by the recovering economic situation after the events of COVID-19, recommending that the Government should increase the National Living Wage to reach their target of two-thirds of median wages by 2024. The LPC also recommended that the 21-22 age bracket should be moved onto the National Living Wage by 2024.

The rise follows a cost of living crisis amid soaring inflation which is expected to rise above 7% in 2022 – it’s predicted that domestic energy bills could reach as high as £3,000 a year.

What is the minimum wage in the UK?

Below, we have listed the new National Minimum Wage and National Living Wage UK rates in comparison to the current rates. 21-22 year olds have seen the biggest percentage increase at 9.8% – an increase that puts this age bracket only slightly behind the National Living Wage in terms of earnings.

What do employers need to do?

As discussed earlier, no matter the size of your business, an employer must pay the correct minimum wage.

It’s easy to check whether you’re paying the correct National Minimum or Living Wage by using the Government’s calculator for employers.

When calculating minimum wage, you must not include:

• Anything the worker has bought for the job and has not been refunded for (e.g. tools or uniform)
• Extra pay for working unsocial hours
• Tips, service charges and cover charges
• Any payment that should be included for the employer’s own use or benefit (for example, if the employer has paid travel for work)

When calculating minimum wage, you must include:

• Income Tax and National Insurance contributions
• Wage advances or loans
• Repayments (for example, overpaid wages, wage advances or loans)
• Accommodation provider by the employer above the offset rate
• Anything the worker has paid for that is not needed for the job or paid for voluntarily (for example, meals)

Keep records

Employers need to keep records to prove that they have paid the correct minimum wage.

They must be kept for a minimum of 6 years if the record was:

• Created on or after 1st April 2021
• Was kept on 31st March 2021 under the previous rule that records must be kept for 3 years

Records need to be kept of an employee’s total pay, total hours worked, agreement about working hours and any documents that show why a worker may not be entitled to the minimum wage.

What happens if you’ve paid a worker below the correct minimum wage?

If you discover that you’ve paid a worker below the correct minimum wage, you must rectify the underpayment immediately.

It’s a criminal offence for employers not to pay the correct minimum wage, and HMRC can ask to see payment records at any point. Employees also have the right to make a complaint to HMRC if they believe they haven’t been paid correctly.

If they find an underpayment, employers will be asked to pay a fine and could also be named by the government.

How your business can stay compliant

As an employer, it is your responsibility to ensure you are paying the new minimum wage by the time the new rates come into force on 1st April 2022.

If you need support in meeting strict compliance such as the rise in the minimum wage, Mitrefinch’s payroll software is specifically designed to adapt to legislation changes. You won’t need to waste time making manual changes and can instead relax knowing our software is handling the change with seamless automation.

Get in touch with our team of experts to find out more.