The National Minimum Wage (NMW) for workers under the age of 25 is to increase from 1 October 2016.

(Workers aged 25 and over are entitled to the National Living Wage (NLW), which was introduced in April 2016.)

Employers need to be aware of the forthcoming changes to the NMW so that the correct payments are made and they avoid penalties for underpaying workers.

National Minimum Wage rates

NMW age/status Current rate 1 Oct 2016 rate
21 to 24 £6.70 £6.95
18 to 20 £5.30 £5.55
16 to 17 £3.87 £4.00
Apprentices £3.30 £3.40

Employers also need to be aware of other factors which could affect the rate being paid, for example what hours are included in actual hours worked, or where an employer requires an employee to provide their own uniform or piece of equipment (the cost of which has to be taken into account when checking if the NMW was paid). The age of an employee should also be noted so that their pay rises where they reach a relevant age on the NMW or NLW scale rates.


Penalties can be imposed by HM Revenue & Customs (HMRC) where the NMW or NLW is not paid. As well as a monetary fine, some employers could face being named and shamed or even prosecuted.

In August of this year the government published the largest list so far of employers named and shamed for not paying the NMW. The 197 companies on the list owed a combined £465,291 in arrears to workers, all of which had since been repaid.

Since February 2014, the government has named and shamed 700 employers who underpaid more than 13,000 workers by over £3.5m. Only three employers have so far been prosecuted, though this seems likely to rise as the government cracks down on low pay.

National Living Wage rates

The NLW started in April 2016 at the rate of £7.20 per hour for people aged 25 and over, which is 50p more than the current £6.70 NMW. The Government is also committed to increasing this every year and it is expected to rise to at least £9 per hour by 2020.

To offset the cost for corporate employers, there will be cuts in corporation tax to 19% in 2017 and to 17% in 2020. This will be of no help, however, for any business which is not run through a company.

Small firms can benefit from a reduction in their National Insurance Contributions (NICs). From April 2016 the Employment Allowance increased from £2,000 per year to £3,000 per year, potentially allowing a firm to employ up to four people full time on the NLW without having to pay any employers’ NICs.

Action for employers

As well as reviewing the size of the workforce, employers may also wish to review:

  • Overtime arrangements
  • Pricing of products and services to assess where increased costs could be absorbed
  • Productivity, particularly in low pay sectors such as retail, hairdressing, hospitality and the care sector.
  • The proportion of the workforce aged under 25.

The imminent increase in the NMW comes on top of auto enrolment of pensions, and the forthcoming Apprenticeship Levy and Migrant Skills Levy both starting in April 2017.

Future levels of NMW and NLW

Whilst the current government appears committed to increasing the NLW to at least £9 per hour by 2020, the Labour party has pledged that it would increase it to £10 per hour by that year should it win the next general election. It also promised to look at ways of reducing the burden of the NLW on small and medium-sized companies by, for example, reforming the employment allowance.

To discuss any of the issues raised here, please contact your usual Bishop Fleming adviser, or a member of our AcademiesBusiness tax or Payroll teams.


Related Services & Sectors



Bishop Fleming is one of the UK’s leading accountants to the academy school sector.

Read More

Care Homes

Keeping your finances together.

Read More


Manage your business, not your payroll

Read More
The logo for Kreston International Investors in clients logo British accountancy awards finalist 2016 logo ICAEW logo Sunday Times Top 100 Best Companies 2018 logo