This article is written by Kishita Gupta, a graduate of the United World School of Law, Karnavati University, Gandhinagar. This article discusses the minimum wage policy in the United Kingdom by going through its historical development and further analysing the National Minimum Wage Act of 1998.

This article has been published by Sneha Mahawar.

Introduction

We should raise the minimum wage so that no one who works full time has to live in poverty. – Barack Obama

Have you come across a situation where labour was paid £2 for a job for which he at least deserved pay of £5? Or where an employer took undue advantage of someone’s poverty and paid them an amount much less than the market standard just because the latter was in desperate need of money? Well, these situations are not uncommon. The only way it is reduced is when a country passes legislation that sets a minimum wage rate for its employees. 

Minimum wages have been defined by the International Labour Organisation as “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract”. In this article, we will be discussing the national minimum wage and the national living wage in the United Kingdom by analysing various aspects such as their historical development, current wage rates, laws governing them, etc.

History of minimum wages in the UK

The minimum wage regulations in the UK date back to the 1890s. Since the Fair Wages Resolution in 1891, there has been some type of wage control. This mandated that companies working under government contracts pay their employees at least the legal minimum wage in the industry in question. For most of the 20th century, “Wage Councils” (introduced through the Wages Councils Act, 1945), which were first established in the 1890s as “Trade Boards” (introduced through the Trade Boards Act of 1909), fixed wages in “sweated trades” with little to no union coverage. The Wage Council was at its peak in 1953 but was later abolished in 1993.

On November 26, 1997, the National Minimum Wage Bill was presented to Parliament. On July 31, 1998, the National Minimum Wage Act of 1998 (NMWM01030) was given royal assent. This was the first time legislation that guaranteed a minimum wage for almost all workers had been introduced in the United Kingdom. The Act changed the law governing farm labourers to ensure that they get wages at least equal to the national minimum wage. Additionally, it gave the Low Pay Commission (NMWM02010) (LPC) a legal foundation, which was established in 1997 and provides recommendations on minimum wage rates and other facets of the minimum wage system. As many as 1.2 million individuals who received an average pay increase of 10% were covered by the first rate, which was set in April 1999 and was £3.60 an hour for those over 22.

Prior to its implementation, the national minimum wage was not widely embraced because it was widely believed that any minimum wage would result in job losses. However, starting with Card and Krueger’s studies on minimum wages in the US, academic perspectives on the effects of minimum wages started to change during the 1990s. The number of people living in low-income households increased at the same time. 

In light of this, the Labour Party began to promote the idea of a national minimum wage. In 1992, the Labour Party pledged to support a minimum wage of 50% of the male median wage. A flexible national minimum wage commission and an independent low pay commission were pledged in the Labour manifesto of 1997. Low Pay business organisations opposed these measures, and the Conservative Party stated that any minimum wage posed an excessive risk to employment. Some unions have expressed concern that it might compromise the fairness of collective bargaining.

Important developments in the National Minimum Wage Act, 1998

S. No.	Year	Important development
	1997	Establishment of the Low Pay Commission.
	1998	June  First LPC report recommends introducing a minimum wage of £3.60 per hour for workers aged 21 and over, and £3.20 per hour for 18-20s. July  National Minimum Wage Act 1998 was passed by both Houses of the UK Parliament and received Royal Assent too.
	1999	The national minimum wage was introduced at £3.60 per hour for workers aged 22 and over, and £3.00 for 18-21s.
	2001	The minimum wage increased by 10.8% to £4.10, which was the largest percentage increase until the introduction of the “national living wage.”
	2004	A new category of rate for 16 and 17-year-olds was introduced at £3.00 per hour. The NMW for adults 22+ rises to £4.85 per hour.
6.	2007	LPC stopped recommending rates for two years ahead, moving to an annual recommendation cycle.
7.	2010	As per the LPC’s recommendation, 21-year-olds become eligible for the adult rate. The Apprentice Rate was also introduced.
8.	2012	The rates for the age groups of 16-17 and 18-20 were frozen to protect the employment of young people following the recession.
9.	2015	Chancellor George Osborne announces the national living wage, a higher minimum wage for workers aged 25+ with a target of 60% of median earnings by 2020.
10.	2016	National living wage was introduced at £7.20 per hour for workers aged 25+, a 50 pence increase, which is the largest ever. Minimum wages increased on April 1, for the first time since 1999.
11.	2019	20th anniversary of the introduction of the minimum wage in the United Kingdom.
12.	2020	The National Living Wage is set to reach 60% of its median earnings target.

The National Minimum Wage Act, 1998 

Qualification for the national minimum wage in the UK

As per Section 1(2) of the National Minimum Wage Act of 1998, any of the following individuals are qualified to receive the national minimum wage:

1. A person who is a worker.
2. A person who works on a contract basis.
3. A person who has ceased to be of compulsory school age.

The following category of workers (as per the definition of ‘workers’ under Section 54(3) of the Act) can also be entitled to the minimum wage:

1. Part-time workers as per Section 41.
2. Casual labourers
3. Agency workers as per Section 34.
4. Workers, who are usually paid on the basis of the number of items they make.
5. Apprentices
6. Trainees who work on probation.
7. Disable workers
8. Agriculture workers as per Sections 46 and 47 of the Act.
9.  Foreign workers
10. Seafarers/Mariners as per Section 40.
11. Offshore workers as per Section 42.

Note: As per Section 55 of the Act, a person ceases to be of compulsory school age in Scotland for the purposes of this Act when he reaches his school age in accordance with Sections 31 and 33 of the Education (Scotland) Act 1980, whereas in relation to Northern Ireland, it shall be construed in accordance with Article 46 of the Education and Libraries (Northern Ireland) Order 1986.

Structure of the UK minimum wages

Depending on the worker’s age and whether they are an apprentice, they should receive the minimum wage. The minimum hourly wage to which practically all workers are entitled is known as the national minimum wage in the United Kingdom. If a worker is over 23, they are eligible for the national living wage, which is more than the national minimum wage. No matter how small the firm is, they are still required to pay the appropriate minimum wage.

There were two rates at the time of the NMW’s implementation in 1999—one for workers ages 18 to 21 and another for those ages 22 and over. The NMW rates’ structure has undergone numerous changes since that time. 

A list of some previous rates is as follows:

Date of application	25 and over	21 to 24	18 to 20	Under 18	Apprentice
April 2016 to September 2016	£7.20	£6.70	£5.30	£3.87	£3.30
October 2016 to March 2017	£7.20	£6.95	£5.55	£4.00	£3.40
April 2017 to March 2018	£7.50	£7.05	£5.60	£4.05	£3.50
April 2018 to March 2019	£7.83	£7.38	£5.90	£4.20	£3.70
April 2019 to March 2020	£8.21	£7.70	£6.15	£4.35	£3.90
April 2020 to March 2021	£8.72	£8.20	£6.45	£4.55	£4.15

Note: Prior to April 1, 2021, only people aged 25 and older were eligible for the national living wage.

As per the latest change, i.e., from April 1, 2022, the national minimum wage rates are as follows:

Date of application	23 and over	21 to 22	18 to 20	Under 18	Apprentice
April 2021 to March 2022	£8.91	£8.36	£6.56	£4.62	£4.30
April 2022	£9.50	£9.18	£6.83	£4.81	£4.81

In order to be entitled to the apprentice rate, apprentices must be either:

• aged under 19,
• aged 19 or over and in the first year of their apprenticeship.

Apprentices are qualified to receive the minimum wage for their age if the following conditions are met:

• They must be aged 19 or over.
• They have completed the first year of their apprenticeship.

Who is not entitled to a national minimum wage or national living wage in the United Kingdom

The following categories of persons are not entitled to receive a national wage or national living wage in the UK:

1. Share fisherman (Section 43)
2. Voluntary workers (Section 44)
3. Persons living and working in religious communities. (Section 44A) 
4. Prisoners (Section 45)
5. Persons who are discharging fines under Schedule 6 of the Courts Act, 2003. (Section 45A)
6. Immigrated persons detained in removal centres as per Section 153A of the Immigration and Asylum Act 1999 (Section 45B)
7. Members of the armed forces (Section 37)

Enforcement of minimum wages

A qualified employee who receives payment below the minimum wage for any pay period is legally entitled to receive arrears from their employer as per Section 17 of the 1998 Act.

Arrears can be:

1. The difference between the worker’s pay and the minimum wage rate in effect at the time they were underpaid, or
2. The arrears are determined by making reference to the current minimum wage rate in cases where it is higher than the rate in effect at the time of the underpayment.

To enforce the minimum wage, the Secretary of State has designated Her Majesty’s Revenue and Customs (HMRC) to serve as compliance officers. The workers’ right to obtain the compensation to which they are legally entitled is the main consideration in  HMRC’s enforcement of employers’ minimum wage requirements.

A worker who believes that he has experienced a detriment in violation of Section 23, which provides a worker with a right to not suffer any detriment by the employer, may complain to an employment tribunal under Section 24 of the Act.

HMRC policies on enforcement

Civil policy

Powers of compliance officers

The 1998 Act grants compliance officers (appointed under Section 13) the authority, under Section 14, to collect information and remove it from the employer’s (or the location where it is housed) premises. Compliance officers are required to follow HMRC regulations on data security when information is removed from the employer’s premises, whether because the employer consents to its removal or because the power to remove records is used. Normally, records removed from employers’ possession should be returned to them within seven days.

Material taken during meetings with employers (such as notes and original or copies of business records) must be handled in the same manner that HMRC treats the files of its clients, which means that it must be kept secure at all times in accordance with HMRC guidance until it is returned to the employer. Officers are required to provide the employer, their advisor, or their agent with a receipt. The specific records (or copies of the records) being gathered and removed should be listed on the receipt, according to the officer. The investigation papers must be retained with a copy of the receipt that has been made.

Only specific electronic data types are accepted by HMRC, and the employer must consent to writing or downloading the data on a disc or data stick. The data must be locally copied onto the secure area of the compliance officer’s encrypted laptop rather than being removed from the employer’s property. The laptop must be transported as specified by HMRC.

Notice of underpayments

If a compliance officer determines that minimum wage arrears existed at the outset of an investigation, a Notice of Underpayment (NoU) should be issued under Section 19. However, HMRC officers have discretion on the issuance of an NoU. The first time a compliance officer contacts the employer is when an investigation is said to have ‘started’ (either by telephone, in writing, or both).

The government aims to ensure that there is a strong enough impediment to underpaying the minimum wage. Non-compliance with the mandate to pay employees the minimum wage is the ground for levying a penalty against an organisation. The trigger point for deciding whether, in theory, an employer may be penalised for failing to pay the minimum wage is the “commencement of an investigation.”

In general, NoUs should be granted even if the employer argues that the underpayment of the minimum wage was unintentional when arrears are present at the outset of an investigation. This covers situations where the employer has paid the employee’s outstanding arrears before the notice is issued but after the investigation has begun.

Additionally, if an employer partially repaid arrears prior to the start of an investigation (for instance, by repaying the underpayment determined in accordance with Section 17(2) but excluding the uplifted arrears determined in accordance with Section 17(4) that reflect the increase in the minimum wage rates since the arrears first arose), an NoU should generally be issued.

When a business has correctly paid any arrears owed to employees prior to the start of an investigation, including instances where they have self-corrected, such as in response to HMRC nudge activities, an NoU should often not be issued. To assist employers in proactively identifying underpayment, HMRC engages in nudge action by simultaneously delivering the same or similar notification to multiple employers. Therefore, it does not signal the beginning of an inquiry into any one employer.

An NoU may or may not be issued by HMRC compliance officers, depending on their evaluation of the specific facts of the case. Although it is anticipated that an NoU will be issued in nearly all instances where HMRC has discovered minimum wage arrears, there may be particular instances where HMRC officers determine that the employer should not be issued with an NoU and, as a result, should not be subject to enforcement action, be named, or face a financial penalty. An individual case-by-case analysis should be done before issuing any NoUs. Even in situations where no NOU is issued, HMRC will nevertheless demand payment from the employer for any arrears that are outstanding.

In other cases, HMRC officers may permit self-correction. For instance, HMRC officials may issue an NoU for the entire amount owed for all present employees and demand that the employer self-correct for former employees. When an employer self-corrects, HMRC must have faith in their ability to do so accurately and that they won’t hesitate to issue an NoU if they are not entirely compliant. HMRC makes sure that all employees get paid what they are owed.

In every situation when an officer is thinking about utilising self-correction, they will probably want to ensure that the employer:

• Has cooperated with the HMRC during the investigation.
• Has taken, or will take, measures to assure future compliance with the requirements of the minimum wage; and
• Has not had any minimum wage violations involving a comparable failure in the past six years.

If it later turns out that the notice improperly lists any requirements, omits any requirements, or is inaccurate in any other way, the compliance officer may withdraw the NoU. The officer may also issue a new NoU at the same time as the prior notice is withdrawn. One replacement notice only may be sent out.  A worker who was excluded from the original NoU cannot be included in a replacement NoU (Section 19G(2)). If an officer issues a notice and then discovers that a worker who was not previously included in the notice is owed arrears, the officer should issue a fresh notice for that person.

In cases where proceedings have been or may be brought against an employer for a criminal offence under Section 31 of the 1998 Act with regard to the same pay reference periods covered by the NoU, a compliance officer may issue an NoU under Section 19B of the 1998 Act with a provision suspending the employer’s obligation to pay a penalty.

Considering the interests of the workers and whether doing so would put the prosecution’s chances of success in jeopardy, it should be decided case by case whether to issue an NoU including such a provision.

Arrears quantification

The amount of back pay given to a worker who has received less than the minimum wage must take into consideration the amount of time that has passed since the underpayment.

The terms of an NoU compel an employer to pay back to the employee or employees any arrears that remain unpaid as of the “relevant day” due to underpayment of the minimum wage for the pay reference periods that ended prior to the relevant day that is listed in the notice.

A payment which was due under Section 17 for one or more pay reference periods ending prior to the ‘relevant day.’ If there are multiple workers listed on the NoU, each worker may have a separate relevant day.

The amount of unpaid wages given to a worker who has received less than the minimum wage must take into consideration the amount of time that has passed since the underpayment. The arrears should be computed using the current rate (in accordance with Section 17(4)) when the minimum wage rate at the time the arrears are calculated is higher than the minimum wage rate that was in effect at the time the underpayment occurred.

The underpayment of a minimum wage is calculated by dividing the amount by the rate of a minimum wage that was in effect at the time of the underpayment and multiplying the result by the rate of a minimum wage that is currently in effect. The underpayment of the minimum wage is defined as the difference between the worker’s compensation and the minimum wage rate that was in effect at the time (Section 17(2)).

When an employee changes age bands, the existing minimum wage rate to be applied when calculating arrears should be the rate that was in effect at the time the arrears began to accumulate for that band. For instance, arrears from when the employee was 16 to 17 years old would be calculated using the current 16 to 17 rate rather than the current 21 to 22-year-old rate (even if the worker is now 21 or over).

Penalty and its quantification

In accordance with Section 19A(2), the Secretary of State may direct an NoU as to the circumstances under which a penalty should not be assessed. If there is a demand to pay a penalty as part of the notification, the requirement may be deferred if criminal proceedings have already begun or are anticipated.

From 100% to 200% of the arrears owing to workers, the government increased the penalty imposed on employers who underpay their employees in violation of the minimum wage regulations. It was designed to ensure that corporations should follow the law and pay employees the money they are legally owed, rather than being motivated to underpay, by increasing the penalty for underpaying the minimum wage. This is a component of the larger set of initiatives outlined to increase minimum wage enforcement even more.

On April 1, 2016, the new NMW penalty went into effect. Any NoU pertaining to a pay reference period starting on or after April 1, 2016, is subject to the revised penalty. From 100% to 200%, the punishment percentage has been raised. The maximum fine per worker is £20,000. For pay reference periods starting on or after April 1, 2016, the revised penalty is calculated as 200% of the total underpayment for all of the workers listed in the NoU. Where this sum is less than £100, the £100 minimum fine should still be imposed. In cases where this sum would exceed £20,000, the £20,000 per worker maximum penalty should be used. If all overdue wages and half of the penalty are paid in full within 14 days, the penalty is reduced by 50%.

Let’s understand this through a table:

Time of pay for which NoU was issued	Penalty	Penalty cap
Before March 7, 2014	50%	£5,000 per employer
Between March 7, 2014 and May 25, 2015	100%	£20,000 per worker
Between May 26, 2015 and April 1, 2016	100%	£20,000 per worker
Since April 1, 2016	200%	£20,000 per worker

Criminal policy

Employers must fulfil a significant social obligation by making sure to pay their employees at least the national minimum wage. The NMW is a legally enforceable entitlement that must be paid. The NMW helps some of our society’s most vulnerable citizens escape poverty and raises their standard of living. Employers who fail to pay the NMW not only violate their legal commitments to their employees, but also play a part in lowering wages for local residents who are employed. Because of the potential for worsening income and working conditions, many people choose to participate in the ‘shadow economy.’ People who work in the shadow economy typically don’t pay taxes and have inadequate employment rights.

Under the 1998 Act, HMRC enforcement teams are given the authority to launch criminal investigations into alleged offences. When both the evidential and public interest stages of the Code for Crown Prosecutors (the Code) are met, HMRC will utilise these powers to open criminal investigations against relevant individuals with a view to prosecution by the Crown Prosecution Service (CPS). Every case will be evaluated according to its own merits.

Criminal procedures may be initiated for a number of offences involving different types of misconduct under Section 31 of the 1998 Act. These are as follows:

Section	Offence
Section 31(1)	A willful refusal or neglect by the employer to pay national minimum wages
Section 31(2)	Failure to keep or preserve the records on national minimum wages.
Section 31(3)	Intentional false entry in the records on national minimum wages
Section 31(4)	Production of false records or information
Section 31(5)(a)	Delaying or obstructing an investigation by the compliance officer
Section 31(5)(b)	Intentional non-cooperation with the investigating team.

The amount of the alleged arrears owed to workers in a case of failure to pay the NMW will not, by itself, be the deciding element when considering whether a criminal inquiry should be opened. The CPS will expressly take into account the following elements in addition to those listed in the Code for Crown Prosecutors 2018 when determining whether to pursue a case.

1. Long-term NMW violations will be taken into consideration when determining whether to prosecute because they show worker exploitation.
2. When there is proof that NMW offences affect workers who are part of a vulnerable population (e.g. because they are physically or mentally disabled or are paid less than the NMW because of their vulnerable status).
3. Should the evidence indicate that victims were held in slavery or servitude and were required to perform forced labour, the CPS will decide to implement criminal proceedings under the Modern Slavery Act 2015. Cases falling under this category are quite serious, and anyone suspected of committing an offence might anticipate facing legal action.
4. However, there may be other situations which are less likely to be recommended to the CPS for criminal proceedings due to their particular facts. For instance, we would need to decide whether continuing enforcement action was in the best interests of the workers and if enforcement or prosecution action could push a company into insolvency. This is because a bankrupt firm might not have the resources to pay the workers’ unpaid salaries in arrears. However, if the severity of the offence called for it, we wouldn’t let insolvency or the threat of it stop us from sending cases to the CPS for criminal prosecution.

Repetitive nonpayment of the national minimum wage by an employer could result in legal action under Section 31(1) of the 1998 Act. When the circumstances of the case call for it, HMRC also reserves the power to submit a first failure to pay the national minimum wages to the CPS for consideration of criminal charges.

Policy on naming employers who break national minimum wage laws.

An assessment of the national minimum wage enforcement strategy used by HMRC and the proposed modifications and reintroduction of the BEIS Naming Scheme were both published on February 12, 2020.

In order to discourage employers and increase awareness of NMW enforcement, the Department for Business, Energy and Industrial Strategy (BEIS) began its programme in October 2010 to name employers who do not pay the national minimum wage. Following an NMW inquiry by HMRC and the issuance of a notice of underpayment, employers were referred to BEIS. Due to harsh criticism of the naming scheme’s operation, it was altered in October 2013 and finally stopped in July 2018.

According to the 2020 guidelines from BEIS (released on February 12, 2020), the naming scheme will be revived in 2020 with the following modifications:

1. The threshold for HMRC to submit employers to BEIS for consideration under the naming scheme will rise from £100 to £500;
2. BEIS will disclose information on employers that have fallen behind on NMW payments more regularly than before the scheme was suspended;
3. BEIS will publish a thorough explanation of the underpayments for the employers in question;
4. A quarterly education bulletin identifying typical causes of underpayments will be released by BEIS.

Conclusion

It can be concluded that the UK government is dedicated to increasing assistance for low-wage workers and enhancing the benefits of employment. Low-wage workers are protected and given incentives to work by the national living wage and national minimum wage. By promoting justice in the labour market and ensuring that competition is based on the quality of the goods and services offered rather than on low prices caused by low pay rates, the minimum wage benefits businesses. Depending on their age and whether they are an apprentice or not, a worker in the United Kingdom should receive the UK minimum wage per hour, which is an important aspect. As per the 20 years assessment of the National Minimum Wage Act 1998 in the UK done by the Low Pay Commission, there have been hardly any negative responses regarding the minimum wage regulations. It observed that the minimum wage has led to more workers benefiting from better pay increases for the lowest paid workers. It has also protected workers during the recession and recovery.

Frequently Asked Questions (FAQs)

Can an employer evade the National Minimum Wage Act through a contract?

No, regardless of what his employment contract states, a worker who is eligible for the national minimum wage must be paid at a rate that is not less than the national minimum wage. Any clause in an employment contract that seeks to limit or exclude the application of a National Minimum Wage Act 1998 provision is invalid. As is any clause that ostensibly forbids someone from pursuing legal action to enforce his right to get payment of the national minimum wage.

Does the National Minimum Wage Act grant any additional rights to employees who are eligible to receive the national minimum wage?

When a worker is eligible for the national minimum wage, they have the right under Section 23 of the National Minimum Wages Act 1998 to not suffer any harm for taking, or proposing to take, any action to compel payment of the national minimum wage or otherwise secure the benefit of that right. If they are fired, for this reason, their firing will be viewed as unfair. While Section 24 ensures the enforcement of this right.

What remedies are available to a worker who is entitled to the national minimum wage but is instead paid less?

If a worker is paid less than the national minimum wage despite being eligible for it, they may file a claim with an employment tribunal to have their right to the national minimum wage enforced.

What are the minimum wages for international students in the United Kingdom?

International students in the UK are paid the same national minimum wage as citizens of the nation. Both full-time and part-time employees are subject to the same rules.

References

1. NMWM01020 – History of National Minimum Wage and overview of legislation: history of the National Minimum Wage – HMRC internal manual – GOV.UK 
2. National Minimum Wage and National Living Wage rates – GOV.UK 
3. https://www.gov.uk/national-minimum-wage/print 
4. Non-compliance and enforcement of the National Minimum Wage – GOV.UK 
5. Paul Skidmore, Enforcing the Minimum Wage, 26 J.L. & Soc’y 427 (1999). 
6. https://www.ilo.org/wcmsp5/groups/public/@ed_dialogue/@lab_admin/documents/publication/wcms_114172.pdf 

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