It is essential both as an employer and employee to understand the differences between the minimum wage and the living wage. They are not the same thing and cannot be used interchangeably. The key difference is that both are minimum salaries which are paid out based on age, and one is higher than the other.
Our guide looks at the differences between the minimum and living wage and how they are enforced. We also consider why the minimum wage is regulated by the government yet the living wage is based on several other factors.
It doesn’t matter how small the business is, employers must be meeting the minimum wage for the age group employed.
Minimum Wage Vs Living Wage – Key Differences
It is important to first set out the key differences between the minimum and the living wage. Once you understand this, it becomes clearer how they both work and are determined.
The minimum wage is payable to workers over the age of 16 and under the age of 23 in the UK. The amount you receive is dependent on your age but applies to employees between the ages of 16 and 23. The minimum wage is a legal entitlement and something employers must abide by. The amount varies each year and considers the economy.
The living wage is payable to workers over the age of 23 are entitled to the living wage which is higher than the minimum wage. The living wage is based on the cost of living rather than purely on the economy. Employers have a legal obligation to ensure they are paying the correct wage and will be asked to prove this if necessary.
They both have something in common, however. They are both there to ensure workers do not fall into poverty by being on a low income.
National Minimum Wage
Anyone who is legally classed as school leaving age (16) and up to the age of 23 is entitled to the national minimum wage.
There are different age brackets and each bracket is on a different hourly figure.
- 16 and 17 year olds receive £5.28
- 18 to 20 year olds receive £7.49
- 21 to 22 year olds receive £10.18
- 23+ year olds receive £10.42
These rates are accurate as at April 2023. They are a statutory right, therefore, all employers should ensure their staff are in the correct wage bracket.
Employers can pay more than the minimum wage should they wish to. They cannot, however, pay less than this.
The exception to the above NLM rates is for first year apprentices. The minimum wage for an apprentice in their first year on the job is £5.28 regardless of their age.
National Living Wage
Employees 23 and over, will be placed on the national living wage instead of the minimum wage.
This is an automatic process that employers should process via the payroll system. There are no different age brackets for the living wage. Every worker aged 23 and over will be on the same amount which is currently £10.42 per hour.
Real Living Wage
The Living Wage Foundation has been championing the Real Living Wage. This is different to the national minimum wage, and the living wage rates which are set by government.
It is calculated on the rising costs of living in the UK. These are rising dramatically at the moment with the soaring energy costs and food bills.
This is not a statutory requirement for businesses, unlike the national living wage. Instead, employers can volunteer to put their staff on the real living wage. According to The Real Living Wage Foundation, over 390,000 businesses have signed up for this since 2011.
Anyone aged 18 and over can be eligible for the real living wage. There are currently two rates for this, one for London and another for the rest of the UK. The rate for London is £11.95 and for the rest of the UK, it is £10.90. Living costs are typically higher across the board in London in comparison to elsewhere in the UK.
Exceptions to Minimum Wage Rates
Some groups of workers may not be entitled to receive the national minimum wage.
You can check if you fall within one of the categories in our list below. This is a list of the workers who do not qualify for minimum wage.
- Anyone under the age of 16.
- Working as a live in au pair or nanny.
- Part of the armed forces.
- Work experience
- A prisoner
- Certain trainees and interns.
- Some farm workers.
- Self employed workers.
If you do not fall into any of these categories and do not receive at least the minimum wage, you should ring ACAS or Citizen’s Advice.
Non Payment of Wage Entitlements
Should you be an employee who is not receiving their correct entitlement, then you need to take action.
You can use the minimum wage calculator to ensure you are being paid correctly and that your hourly rate does not fall below national minium rates. If you discover you have been underpaid at work then you should either approach your employer or go directly to HMRC.
This means your boss is currently breaking the law and could face a hefty penalty. They will be instructed to pay the difference of what is owed and this can also be backdated.
If you do not get paid by the hour then your wage should still not fall below the minimum wage. This is where the calculator comes in handy as it will break it all down for you. Workers can also request a copy of the payment records for them which employers should have available.
You also have the option of using an employment tribunal. The government comes down heavily on any business failing to pay at least the minimum wage.
Why Are Minimum Wages Lower for Younger Workers?
One of the main reasons for the different age brackets is to help lower the rate of youth unemployment. Employers may be less likely take on young workers if there was one flat rate for all. As it is, there are plenty of job opportunities for younger individuals and businesses are willing to take them on.
There is also the argument of the younger workers not having the same living costs to pay out. Most 16 year olds will still be under parental or carer care and will not have to pay out on housing, electricity, gas and council tax. It is assumed that the older you get, the more money you begin paying out to live comfortably.
It is argued that the different wage brackets actively encourage a healthy approach to work life. This, in turn, decreases the likelihood of unemployment during adulthood. The UK gov blog laid out this position on a lower minimum wage for young workers in 2015.