What is National Minimum Wage?

someone counting cash they've just taken from an ATM

If you’re new to contracting or umbrella working, you might be researching what your income will look like and whether or not you’ll be eligible for the National Minimum Wage.

Put simply, the outcome will differ depending on whether you’re an umbrella worker or a director of your limited company.

We’ll now explain this, along with the basics of the National Minimum Wage and what it means for contractors and umbrella workers.

What is the National Minimum Wage?

The National Minimum Wage is the hourly legal minimum that must be paid by employers to employees.

Almost all workers are entitled to the National Minimum Wage, with a few exceptions.

Who is entitled to the National Minimum Wage?

All employees between 16 and 23 are entitled to the National Minimum Wage, with the National Living Wage paid to employees aged 23 and older. There’s also a minimum rate specifically for apprenticeships.

However, there are some exceptions. The self-employed, company directors and volunteers aren’t eligible for the National Minimum Wage.

Does the National Minimum Wage apply to contractors working through an umbrella company?

In a word, yes. Contractors working through umbrella companies are employees of the umbrella and, as such, are eligible for the National Minimum Wage.

Current National Minimum Wage rate

The National Minimum Wage is set at different levels for workers of different ages and increases each year incrementally for the 2022/23 tax year. The rates are as follows:

	23+	21-22	18-20	U18	Apprentice
2022/23	£9.50	£9.18	£6.83	£4.81	£4.81

Previous National Minimum Wage

The National Minimum Wage was set at the following rates in the last two tax years.

	23+	21-22	18-20	U18	Apprentice
2021/22	£8.91	£8.36	£6.56	£4.62	£4.30

	23+	21-22	18-20	U18	Apprentice
2020/21	£8.27	£8.20	£6.45	£4.55	£4.15

You’ll notice that for the 2020/21 tax year, the age banding was slightly different – we’ve explained why in the next section.

The government website contains more details on historic National Minimum Wage rates.

What is the National Living Wage?

The National Living Wage is paid to employees aged 23 and over and has been since 1st April 2021. Before that, it was paid to employees aged 25 and over.

Similar to the National Minimum Wage, this is the legal minimum that must be paid to employees who qualify.

Current National Living Wage rate

The National Living Wage is set at £9.50 per hour for the 2022/23 tax year.

Much like the National Minimum Wage, it increases slightly each year. Previously, it was £8.91 in the 2021/22 tax year, when all employees aged 23 and above became eligible.

In the 2020/21 tax year – when it only applied to employees 25 and over – it was £8.72 per hour.

In summary, the National Minimum Wage and the National Living Wage are the legal minimum hourly rates of pay that all employees (including umbrella workers) in the UK are entitled to from the age of 16.