Understanding the difference between the National Minimum Wage, the National Living Wage, and the Living Wage is imperative for any small business owner who has employees. The penalties for failing to pay employees correctly are substantial.

To help demystify the situation, we’ll take a look at these three main terms relating to wages and explain what they mean:

• National Minimum Wage
• National Living Wage
• Living Wage (a.k.a ‘Real Living Wage’)

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What is the National Minimum Wage?

The National Minimum Wage (NMW) in the UK is the minimum pay per hour most workers under the age of 21 (previously 23) are entitled to by law. It is dependent on your age and whether you’re an apprentice. It’s set annually by the Government, based on recommendations by an independent body known as the Low Pay Commission.

The NMW is applicable to every person over school leaving age, regardless of their position in the company. There are, however, a few exceptions where the NMW doesn’t apply, including:

• Self-employed people running their own business
• Company directors
• Volunteers or voluntary workers
• Family members of the employer living in the employer’s home.

The NMW rates are as follows:

¹ The apprentice rate applies to all under-19s on a Contract of Apprenticeship and apprentices aged 19+ in their first year. Payment covers all working and training hours. After the first year, the apprentice must be paid the normal NMW for their age.

What is the National Living Wage?

The National Living Wage (NLW) is the minimum pay per hour most workers aged 21 and over are entitled to by law. Previously, it applied to those 23+ (March 2024 – April 2021) and 25+ before that.

From 1 April 2026, anyone over 21 (not in the first year of an apprenticeship) must be paid £12.00 per hour or more.

Despite the name, the NLW is not based on the actual cost of living – it’s calculated as a proportion of median earnings. It was renamed in 2016 from “NMW for over-21s” by the Conservative government.

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What is the Living Wage?

The Living Wage (or Real Living Wage) is voluntary and based on the cost of living, rather than Government calculations. It’s set annually by the Living Wage Foundation, reflecting what people actually need to cover essentials like rent, food, and bills. It’s set annually by the Living Wage Foundation, reflecting what people actually need to cover essentials like rent, food, and bills.

The recommended Living Wage is:

• UK-wide: £13.45 per hour
• London: £14.80 per hour

Only around 15,000 UK companies are officially Living Wage employers.

Paying the Living Wage can improve employee retention, reduce absenteeism, and enhance the quality of work.

Non-payment of the NMW, NLW, or Living Wage

It is against the law for employers to pay workers less than the NMW or NLW, or to falsify payment records. The maximum fine for non-payment is £20,000 per worker with a minimum of £100 for each employee or worker affected, even if the underpayment is worth less. However, employers who fail to pay can face further restrictions and legal actions.

Whether or not you decide to pay your employees at least the Living Wage, remember that failure to pay the legally required amount can land your business in hot water.

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