The National Minimum Wage (NMW) and National Living Wage set out the minimum hourly rate a UK worker must receive. It’s important to ensure that your contractors are paid at least this amount, so in this article we’ll look at how umbrella company pay interacts with NMW legislation.
The rates are updated annually, usually on the 1st of April, and they vary depending on the age of the worker.
From April 2024 the rates are:
| 21 and over | 18 to 20 | Under 18 | Apprentice |
| £11.44 | £8.60 | £6.40 | £6.40 |
The apprentice rate applies to apprentices who are either under 19 or in the first year of their apprenticeship. After the first year, apprentices get the rate that is appropriate for their age, unless they are under 19. For example, a 20-year-old apprentice would be entitled to at least £6.40/hour in the first year of their apprenticeship, and at least £8.60 after the first year.
Which number are we talking about?
The National Minimum Wage refers to the worker’s pay – the amount paid to the worker before statutory deductions e.g. for income tax, national insurance contributions, student loan repayments and certain other things.
It doesn’t include additional amounts paid for overtime, or to cover expenses like uniforms, protective clothing or equipment required to do the job. Likewise, if the worker has expenses for such things they should be taken into account when calculating minimum wage. For example, a few years ago the restaurant chain Wagamama fell afoul of minimum wage legislation by requiring staff to wear black jeans, and failing to take the cost into account.
How the National Minimum Wage affects umbrella contract rates
The cost of engaging a worker is not limited to the amount the worker is paid. Other costs, like employer’s national insurance, pension contributions, apprenticeship levy and administration expenses also need to be accounted for.
Where employment is outsourced to an umbrella employer, the contract rate paid to the umbrella includes these additional costs as well as the amount the worker will be paid. The amount paid to the worker must be at least minimum wage, which means the contract rate paid to the umbrella must be higher.
An experienced and compliant umbrella employer, like Fair Pay Services, will ensure all their employees are paid at least the minimum wage, and will be able to provide advice on minimum contract rates.
The consequences of not paying the national minimum wage
As one might expect with such important legislation, the consequences of paying workers less than the National Minimum Wage can be extremely serious. HMRC can issue a notice of underpayment, requiring payment of the arrears to affected workers and a penalty to the government. Penalty payments are set at double the value of the underpayment, up to a maximum of £20,000 per worker.
As if this wasn’t enough, the government runs a program of “naming and shaming” those who have underpaid workers. A list of companies who have received notices of underpayment is periodically published online, including the amount underpaid and the number of workers involved. Prominent companies, and those where there is a special interest like recruiters and their clients, can expect this to be followed by a storm of embarrassing headlines and reputational damage.
How to make sure you don’t get caught out by employment legislation
It may appear to be simple, but the devil is, as they say, in the detail. The best way for recruiters to make sure they never get caught out is to partner with employment experts. A good umbrella supplier will help you navigate all the complexities of employment legislation, even where you’re not outsourcing all employment to them.
If you have questions about this issue, or if we can help in any way, please contact our expert team on 01604 360222 or email sales@fairpayservices.co.uk.