People running a small business or working as employees in a company should know the difference between the Minimum Wage, National Living Wage, and Real Living Wage.
Minimum Wage (National Minimum Wage Or NMW)
The UK Government is responsible for fixing the National Minimum Wage rates. The National Minimum Wage is fixed after taking into account the recommendations that are put forward by an independent body named the Low Pay Commission. The NMW in the United Kingdom is decided by considering a person’s age and if the person is an apprentice or not.
Under the UK National Minimum Wage regime, almost every worker (must at least be of school leaving age, i.e., 16) is entitled to receive the NMW. It includes:
- Casual Workers
- Temporary Workers
- Part-Time Workers
That said, there are certain people who are exempted from receiving the National Minimum Wages. This includes:
- People running their own business (self-employed)
- Directors of a company
- People working in the capacity of volunteers
- Employer’s family members who live in the employer’s house
The Minimum Wage is provided irrespective of the position one holds in a company.
The rates of National Minimum Wages are as follows:
| Age Band (Years) | OLD (Before 2019) | NEW (2019-2020) |
| Above 25 | £7.83 | £8.21 |
| Between 21-24 | £7.38 | £7.70 |
| Between 18-20 | £5.90 | £6.15 |
| Below 18 | £4.20 | £4.35 |
| Apprentice | £3.70 | £3.90 |
The apprentice-based Minimum Wage is provided to apprentices who are either:
- Below the age of 19
- 19 or above and are in the 1st year of their apprenticeship
Also, an apprentice is not only entitled to the apprentice rates of NMW for the period he/she spends working, but also for the period in which he/she was trained for the particular job. One the apprenticeship is over; the person is entitled to receive the normal rates of the NMW per their age (See table above).
National Living Wage (NLW)
National Minimum Wage is considered as the obligatory rate of wages that are to be provided to people aged 25 and above in the United Kingdom. This system was established on April 1st, 2016. NLW and NMW are the terms that are used interchangeably. National Living Wage does not take into account the cost of living and states that anyone who is an employee and aged 25 or above and is not an apprentice should be paid £8.21 per hour.
Real Living Wage (RLW)
The Living Wage Foundation is the organisation that helps determine the Real Living Wage. Real Living Wage is the wage that takes into account the cost of living in the United Kingdom. It may vary from area to area. The living wage in other regions of the United Kingdom is set at £9 per hour while in London, it is £10.55 per hour. These wages are recommendations given by the Living Wage Foundation. The majority also believes that the Real Living Wage is more realistic when compared to the National Living Wage as the former is based on the essential needs of employees, such as food, shelter, and clothing. The Real Living Wage is higher than the National Minimum Wage as it fulfills all the necessary needs of workers, which leads to increased efficiency, decreased absenteeism, better work environment, etc.
Difference between National Living Wage And Real Living Wage
1. Real Living Wage applies to everyone who is above the age of 18, whereas the National Living Wage applies to people above the age of 25. The contention behind fixing NMW for 25 years and above is that they need to start their life and take some big steps like getting married, buying a house, and having children.
2. The National Minimum Wage does not take into account the cost of living in the United Kingdom, whereas the Real Minimum Wage is purely based on the cost of living of a worker that shall include basic necessities such as food, shelter, and living. National Minimum Wage is the aggregate of the UK workers’ hourly average earnings (current pay is 55%, and the target is to reach 60% of the median earnings by the year 2020). Therefore, Real Living Wage is considered to be beneficial for individuals as it helps them meet their daily ends.
3. National Living Wage is the same throughout the United Kingdom, whereas it differs in the case of Real Living Wage. The Real Living Wage in London is £10.55 an hour as the cost of living in London is higher when compared to the other regions of the United Kingdom (where the RLW is £9 an hour).
Conclusion
It is the moral duty of an employer to provide its employees the Real Living Wage so as to maintain balance in society and to ensure that employees can meet their daily needs and provide for themselves and their families. However, employers who, for any reason, fail to provide the wages that are in accordance with the laws of the land can be banned from being a director of a company for up to fifteen years.
Therefore, keep these differences in mind before deciding the wage for your employees.