National Minimum Wage Act 1998

Background

No national minimum wage existed prior to 1998, although there were a variety of systems of wage controls focused on specific industries under the Trade Boards Act 1909. The Wages Councils Act 1945 and subsequent acts applied sectoral minimum wages. These were gradually dismantled until the Trade Union Reform and Employment Rights Act 1993 abolished the 26 final wages councils, which had protected around 2,500,000 low-paid workers.

Much of the Labour Party had long opposed a government minimum wage because they feared that would reduce the need for joining trade unions, which they supported.

Part of the reason for the shift in Labour's minimum wage policy was the decline of trade union membership over recent decades (weakening employees' bargaining power), as well as a recognition that the employees most vulnerable to low pay, especially in service industries, were rarely unionised in the first place. Labour had returned to government in 1997 after 18 years in opposition, and a minimum wage had been a party policy since as far back as 1986, under the leadership of Neil Kinnock.

The implementation of a minimum wage was opposed by the Conservative Party and supported by the Liberal Democrats.

Overview

The NMW rates are reviewed each year by the Low Pay Commission, which makes recommendations for change to the Government.

The following rates apply as of April 2025:

• £12.21 per hour for workers aged 21 and over
• £10.00 per hour for workers aged 18–20
• £7.55 per hour for apprentices and workers aged under 18

In his 2015 budget, George Osborne announced that from 1 April 2016, a further rate known as the "National Living Wage" ("NLW") would apply to those aged 25 or over at the rate of £7.20 per hour. This was successfully introduced into legislation. The minimum age threshold was decreased to 23 in April 2021.

In November 2023, Jeremy Hunt announced that all workers over 21 would receive the National Living Wage from April 2024 onwards.

Law

The National Minimum Wage Act 1998 applies to workers (section 1(2)), that is, employees, and anyone who has a contract to do work personally, other than for a customer or a client (section 54(3)). Those working through agencies are included (section 34), so that the agencies' charges must not reduce a worker's basic entitlement. Home-workers are also included, and the Secretary of State can make order for other inclusions.

The Secretary of State can also make exclusions, as has been done for au pairs and family members in a family business. Sections 43 through 45 delineate excluded groups of workers, such as unpaid volunteers, prisoners, and share fishermen paid by a share of profits. Inserted by the Immigration, Asylum and Nationality Act 2006, section 45B excludes persons detained in removal centres, which are long-term detention facilities for immigrants and asylum seekers.

The hours that are used in a national minimum wage calculation are dependent upon work type as defined within the National Minimum Wage Regulations 1999. The different work types are time work, salaried hours work, output work and unmeasured work. Hours to be paid for are those worked in the "pay reference period", but where pay is not contractually referable to hours, such as pay by output, then the time actually worked must be ascertained. The principle is that the rate of pay for hours worked should not fall below the minimum. Periods when the worker is on industrial action, travelling to and from work and absent are excluded. A worker who is required to be awake and available for work must receive the minimum rate. This does not prevent the use of "zero hour contracts", where the worker is guaranteed no hours and is under no obligation to work.

Workers' rights

Section 10 permits a worker to issue a "production notice" to their employer requesting access to the employer's records if they believe that their pay may be, or have been, below the national minimum wage.

Enforcement

The NMW is enforceable by HMRC (section 14), or by the worker making a contractual claim or through a "wrongful deduction" claim under Part II of the Employment Rights Act 1996. Section 18 provides for compensation. Employers must not subject their workers to dismissal or any other detriment (section 25 and section 23).

In October 2013, new rules to publicise the names of employers paying under the minimum wage were established; the names of most employers issued with a Notice of Underpayment are published. In 2014, the names of 30 employers were released by the Department for Business, Innovation and Skills. In 2017, the names of 852 employers were released by the Department for Business, Energy and Industrial Strategy.

Failure to pay underpayments after issue of a notice of underpayment results in payment of a financial penalty to the Secretary of State. In 2016, arrangements were made to ensure that underpayments result in double-level financial penalty. The Low Pay Commission has highlighted that apprentices are particularly exposed to being underpaid.

The National Minimum Wage (Enforcement Notices) Act 2003 (c. 8) amended the 1998 act to allow employees to claim back payments from a previous employer of an employee in cases where the previous employer failed to pay them the minimum wage.

The Case law

• Revenue and Customs Commissioners v Annabel's (Berkeley Square) Ltd [2009] EWCA Civ 361, [2009] ICR 1123
• Spackman v LMU [2007] IRLR 741, entitlement to payment of wages

Statistics

The Office for National Statistics produces information about the lower end of the earnings distribution and estimates for the number of jobs paid below the national minimum wage. The figures are based on data from the Annual Survey of Hours and Earnings.

Perspectives

The policy was opposed by the Conservative Party at the time of implementation, who argued that it would create extra costs for businesses and would cause unemployment. In 1996, The Conservative Party's future leader, David Cameron, standing as a prospective Member of Parliament for Stafford, had said that the minimum wage "would send unemployment straight back up". However, in 2005 Cameron stated that: "I think the minimum wage has been a success, yes. It turned out much better than many people expected, including the CBI." It is now Conservative Party policy to support the minimum wage.

While Mayor of London, Boris Johnson, future Conservative Prime Minister, supported the London living wage, ensuring that all City Hall employees and subcontracted workers earn at least £7.60 an hour and promoting the wage to employers across the city. In May 2009, his Greater London Authority Economics unit raised the London Living Wage for City Hall employees to its current rate of £7.60, £1.80 more than the legal minimum rate of £5.80.

To put the pay in an annual perspective, an adult over the age of 21 working at the minimum wage for 7.5 hours a day, 5 days a week, will make £1,859/month and £22,308/year gross income. After pay-as-you-earn tax (PAYE), this becomes £1,631/month or £19,581/year (2024–25). Full-time workers are also entitled to a minimum of 5.6 weeks paid holiday per year from 1 April 2009, with pro-rata equivalent for part-time workers. This includes public holidays.

At the September 2021 Labour Party Conference, Labour Party members voted in favour of a £15 an hour minimum wage. The motion calling for a £15 an hour minimum wage was put forward by the Unite union. Labour Party leader Keir Starmer and his leadership team did not indicate a preference either in favour or against the motion. Though it is thought that Starmer is unlikely to adopt the policy. Organisations who support a £15 an hour minimum wage include: the Green Party of England and Wales, the Bakers, Food and Allied Workers' Union (BFAWU), the Trades Union Congress, and the GMB trade union, who call for "the National Minimum Wage to be replaced with a Real Living Wage rate" at £15 for all ages.

Current and past rates

Notes

References

• E McGaughey, A Casebook on Labour Law (Hart 2019) ch 6(1)
• B Simpson, 'A Milestone in the Legal Regulation of Pay' (1999) 28 ILJ 1, 17–18
• B Simpson, 'The National Minimum Wage Five Years On' (2004) 33 ILJ 22

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