Business owners should prepare for an increase in the National Minimum Wage (NMW) next month.

From April 1, NMW will see low-paid workers earn almost £1,000 more a year with an increase of 6.2%.

The national living wage (which is for those aged over 25) will rise from £8.21 to £8.72 per hour. That equates to a pay rise of £930.

Also, younger workers will also receive a boost to the national minimum wage of between 6.6 and 6.5% depending on their age.

What are the new National Minimum Wage rates?

From April 1 the National Minimum Wage rates will increase:

• The rate for 25+-year-olds (the national living wage) increases from £8.21 to £8.72 per hour
• For 21 to 24-year-olds it is £7.70 to £8.20 per hour
• The rate for 18 to 20-year-olds rises from £6.15 to £6.45 per hour
• The new rate for 16 to 17-year-olds increases to £4.55 per hour
• Rate for apprentices also rises to £4.55 per hour

The difference between National Minimum Wage and Living Wage

All employers must pay at least the set National Minimum Wage to their employees, which is the NMW. These are the minimum hourly rates legally and are subject to change annually.

Workers cannot “contract out” of these rates and all employers, irrespective of size, are required to pay the NMW.

The National Living Wage (NLW) is essentially the minimum wage for all workers and employees aged 25 and over.

As with the NMW it is non-negotiable and is prescribed by law.

Are there penalties for not paying the correct wage?

It is a criminal offence for employers to not pay someone the NMW or NLW. And it is also an offence to fake payment records.

Also, HMRC may issue with a Notice of Underpayment to employers failing to pay the correct NMW or NLW.

This requires them to pay a penalty of 200% of the total amount of underpayment (the difference between the amount paid and the correct NMW or NLW rate).

This is halved if paid within 14 days of the notice.

The maximum penalty per worker is £20,000. Also, the Department for Business, Energy & Industrial Strategy (formerly BIS) can “name and shame” businesses that flout minimum wage regulations.

And directors can be disqualified for up to 15 years.

Can I include tips?

If you work in the service industry where customers give tips, they are not part of the National Minimum Wage.

Employers must not take them into account when calculating NMW or NLW payments.

If a company does include them, it means your business is not paying the correct minimum sums and you could face a penalty.

Where you don’t have to pay minimum wage

You do not have to pay the minimum wage to consultants, freelancers or contractors who are self-employed.

Also, interns and voluntary workers are exempt as are higher and further education students on a work placement for up to one year.

Workers on a government employment scheme can’t claim the minimum rate either.

If you are unsure you can always speak to us here at Concept Accountancy. So, prepare for the changes from April 1.