The UK Government introduced the ‘National Living Wage’ in April 2016, inspired by a campaign. This established a higher statutory minimum wage for workers aged 25 and over. In 2021, the age threshold was lowered to include workers aged 23 and over.

Since April 2024, the National Living Wage has been extended to workers aged 21 and over, lowering the previous age threshold of 23. However, workers aged 18–20 remain subject to a lower statutory minimum wage, despite many working full-time and living independently. As a result, they may still earn as little as £10.85 per hour.

In contrast, the real Living Wage, established by the Living Wage Foundation, applies to all workers aged 18 and over.

What is the difference between the Living Wage and the Government’s National Living Wage?

The main difference is that the National Living Wage is a legal minimum wage set by the UK Government, whereas the real Living Wage is a voluntary rate calculated and promoted by the Living Wage Foundation

How and why is the Real Living Wage Calculated?

To estimate the hourly wage a person needs to achieve a minimum acceptable standard of living.

The calculation is carried out annually by the Resolution Foundation on behalf of the Living Wage Foundation.

The calculation is based on the following steps:

1. A minimum standard of living is established – Food costs, household bills, transport cost, childcare costs etc
2. Different family types considered – considers 17 representative family types, eg, single adult, families with/without children etc.
3. The required income is converted into an hourly wage – generally assumes 37.5hrs per week. Considers relationship between gross and net income.
4. Separate UK and London rates are calculated.

What is National minimum Wage?

The term National Minimum Wage is actually the umbrella term for the UK’s statutory minimum wage system. It includes different rates depending on the worker’s age.

For example:

• National Living Wage (NLW): the statutory minimum rate for workers above the relevant age threshold.
• National Minimum Wage rates: lower statutory rates that apply to younger workers and apprentices.

Summary:

National Minimum Wage = the UK’s statutory minimum wage system.
National Living Wage = the highest age-based rate within that statutory system.
Real Living Wage = a voluntary, higher wage rate based on the cost of living, calculated by the Living Wage Foundation.

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Article written by Vicki Connelly, Senior Payroll Advisor