Understanding your responsibilities when it comes to the National Minimum Wage

What is the difference between National Living Wage and National Minimum Wage?In today’s challenging economic climate, there are individuals and businesses alike who find themselves in a difficult position, unable to meet the requirements of paying the National Minimum Wage (NMW) or the National Living Wage (NLW).

As essential as these wage standards are in ensuring fair compensation for workers, various factors can contribute to financial constraints that hinder compliance.

Whether it’s small businesses grappling with limited resources, industries affected by market downturns, or individuals struggling with personal financial burdens, the inability to afford NMW or NLW presents a complex dilemma with far-reaching implications for both employers and employees.

What is the difference between National Living Wage and National Minimum Wage?

The distinction between the National Living Wage (NLW) and the National Minimum Wage (NMW) lies primarily in the age bracket to which they apply. The NLW is specifically designed for workers aged 23 and over, while the NMW encompasses various age groups. The rates for these wages for the year 2023 – 2024 were as follows:

National Living Wage (NLW):

  • Workers aged 23 and over: £10.42 per hour

National Minimum Wage (NMW):

  • Workers aged 21 to 22: £10.18 per hour
  • Workers aged 18 to 20: £7.49 per hour
  • Workers under 18: £5.28 per hour
  • Apprentices: £5.28 per hour

It’s important to note that these rates are subject to change annually, and it is crucial for employers to stay informed about any updates to ensure compliance with the law and fair compensation for their employees. The NLW serves as a higher benchmark for older workers, reflecting the belief that individuals in this age group may have higher living costs and greater financial responsibilities.

By establishing different wage levels based on age, the aim is to provide a more equitable and tailored approach to wage regulation across different stages of a person’s working life.

How are pensions affected?

Due to the fact that contributions to auto enrolment pension plans are calculated as a percentage of the employee’s “qualifying earnings,” you will also be required to contribute more to the employee’s pension for every rise in pay.

In April 2019, the minimum pension contribution level increased to 8% of the applicable earnings. Employer contributions account for 3% of the total, leaving employees with the burden of paying the remaining 5%.

Do I have to pay National Living or National Minimum Wage?

Yes, as an employer in the United Kingdom, it is important to understand your obligations regarding the payment of the National Living Wage (NLW) and the National Minimum Wage (NMW).

The requirement to pay these wages depends on various factors such as the age of your workers and the type of employment they are engaged in. In general, if your employees are 23 years old or older, you are legally obligated to pay them at least the NLW.

For workers under 23, the NMW rates based on their age group apply. However, it’s crucial to note that these rates can change annually, and it is essential to stay updated to ensure compliance with the law.

It’s important to familiarize yourself with the specific criteria and exceptions outlined by the government to determine whether you must pay the NLW or NMW. Additionally, it is crucial to be aware that non-compliance with these wage requirements can result in penalties and potential legal consequences.

Therefore, it is advisable to regularly review and assess your employees’ wages to ensure that they meet the minimum standards set by the government and that you fulfill your responsibilities as an employer.

What happens if I can’t pay National Living or National Minimum Wage?

Failing to pay the National Living Wage (NLW) or the National Minimum Wage (NMW) is a serious legal violation in the United Kingdom. The government has established these wage standards to ensure fair compensation for workers and protect their rights. If you are unable to meet these obligations as an employer, you may face significant legal and financial consequences.

Non-payment of NLW or NMW can result in penalties imposed by HM Revenue and Customs (HMRC). The exact penalties depend on the severity of the non-compliance and the number of workers affected. These penalties can include fines, which are calculated as a percentage of the total amount owed to the workers. In addition to financial penalties, non-compliance can lead to damage to your business’s reputation, strained employee relations, and potential legal actions from affected workers seeking proper compensation.

It is illegal not to pay the NLW or NMW because it violates employment laws and undermines the principle of fair remuneration for work. These wage standards are in place to ensure that workers receive a decent income, have the means to support themselves and their families, and are protected from exploitation. By disregarding these legal obligations, employers not only jeopardize the financial well-being of their employees but also undermine the fundamental principles of fairness and respect in the workplace.

What should I do if I cannot afford to pay the National Living or National Minimum Wage?

You must act quickly if your company’s finances are so tight that you are unable to keep paying your employees’ wages at the required pace. Payroll problems are frequently a sign of more serious financial problems that need to be handled right away. The moment you can, get in touch with an insolvency professional and explain the financial troubles your business is facing.

Consider potential financing options

Many times, a company’s inability to pay its employees what they are owed is the result of a cash flow issue. A professional in insolvency will be able to evaluate your position in greater depth and advise you of your possibilities. Consider invoice finance options like factoring and discounting if you’re concerned about your cash flow. This could help. When you send out invoices to customers, invoice financing gives you access to a certain percentage of your outstanding invoices right away.

This might provide you the assurance you need to plan your cash flow for the upcoming weeks and months, including employee wages. Even though there is a cost involved, some firms find that having the opportunity to plan ahead is worth the money

Formal insolvency procedures

Consider whether a formal liquidation procedure would be the best course of action if your company’s inability to adhere to NLW and NMW standards is a result of more profound issues. A variety of corporate insolvency procedures are available; not all of them lead to a company’s demise.

  • Rescue and recovery

The goal of procedures like CVAs and business administration is to stabilise and save a failing company by renegotiating debts and long-term responsibilities. This can reduce costs right away, enhancing liquidity both now and in the future. To engage in such a procedure, however, a viable firm that is worth saving must exist, and you must be able to show that your business has a genuine prospect of a prosperous future.

  • Company liquidation

When your company is having trouble covering its obligations, such as paying the required minimum wages, the only choice left is to consider closing down. This is often accomplished for an insolvent business through a Creditors’ Voluntary Liquidation (CVL). The process of putting a firm into liquidation will begin once it has been determined that a CVL is the best course of action for it. This will involve communicating with creditors, selling assets, and allocating proceeds as necessary. By the time the procedure is finished, the firm will no longer exist, and all outstanding debts will be cancelled (unless they were personally guaranteed).

Frequently asked questions

What happens if a business fails to pay the National Minimum Wage?

If a business fails to pay the National Minimum Wage, the government can impose penalties on employers that underpay their workers in breach of the minimum wage legislation. The penalty can be as much as 200% of arrears owed to workers. The maximum penalty is £20,000 per worker.

Can you opt out of National Minimum Wage?

Yes, you may choose to opt out of this rule voluntarily, but you cannot be forced to do so, and you can cancel your opt out at any time with 7 days' notice. You must also be paid at least the National Minimum Wage for the hours that you work. The hourly rate is based on your age and increases each year.


In conclusion, the importance of paying the National Minimum Wage (NMW) or National Living Wage (NLW) cannot be overstated. These wage standards are designed to uphold fair compensation for workers and protect their rights. If a business finds itself unable to meet these obligations, it is crucial for the business owner to take proactive steps and seek professional insolvency advice.

Failing to pay minimum wages not only carries legal and financial consequences but also undermines the principles of fairness and respect in the workplace. By addressing the issue and seeking appropriate guidance, business owners can work towards resolving financial challenges and ensure compliance with the law, ultimately fostering a more equitable and sustainable work environment.

If you require professional insolvency advice or assistance in navigating financial difficulties, I encourage you to complete an online enquiry to connect with experts who can provide the guidance you need.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.