Difference between National Living Wage and Real Living Wage explained
This week the Government announced it will raise the National Living Wage but what is the difference between that and the Real Living Wage?
Chancellor Jeremy Hunt confirmed at the Tory party conference in Manchester that from April next year, the National Living Wage in the UK would rise from the current £10.42 an hour to at least £11 an hour. The rates which workers are paid are decided each year by the Government and are based on the advice of an independent advisory group, the Low Pay Commission.
The Government said the increase would see the annual earnings of a full-time worker on the National Living Wage increase by £1,000 a year. The Chancellor will accept the recommendations of the LPC when they are released next month.
The retail, care and hospitality sectors account for a large number of living wage jobs, although they are found in many other parts of the economy too. Many people get confused as there is also the National Minimum Wage and Real Living Wage - so what is the difference?
What is the National Living Wage?
The National Living Wage is an "obligatory" minimum wage businesses pay workers in the UK aged 23 and over for each hour they work. The National Living Wage was coined by former Chancellor George Osbourne in 2015 and was first introduced in April 2016 for workers aged 25. It has since been lowered to cover people aged 23 too.
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The National Living Wage includes agency workers, people on zero-hour contracts and migrants. It doesn't matter the size of the company or the sector, your employer still has to pay you the National Living Wage if you are 23 or over.
The rate is currently £10.42 and the amount someone will receive over the course of the year is dependent on how many hours are worked.
According to job site talent.com, if you work 40 hours a week for £10.42 an hour you would earn around £21,600 a year before tax and pension deductions. If your wage rises by 58p to £11 an hour next April, you would earn around £22,800 a year before tax and pensions.
What is the National Minimum Wage?
This is where people get confused. The National Living Wage is technically the minimum wage for those over the age of 23. However, the National Minimum Wage is the rate businesses pay those under the age of 23.
It is tiered depending on your age - this means you are paid less an hour if you are 16 compared to someone who is aged 18. Apprentices are also paid a different rate to the National Minimum Wage. They are entitled to the apprentice rate if they’re under 19, or in the first year of their apprenticeship.
The current rates are:
- 21 to 22 - £10.18
- 18 to 20 - £7.49
- Under 18 - £5.28
- Apprentice - £5.28
According to Finder.com, if you are paid the rate of £10.18 an hour (21 and 22 year olds) and work 40 hours a week then you will have an annual salary of £21,100 before tax and pensions. If you are paid £7.49 (18 to 20 year olds) and work 40 hours a week you would have an annual income of £15,500 before tax.
The LPC say the reason why young people are paid less is because there tends to be higher level of unemployment amongst younger people than the general population, and there is evidence to suggest that being unemployed is worse for you when you are younger. Research suggest a "wage scarring affect" and that you are more likely then to still be earning less then your peers when you're older.
Alongside this, as younger workers have less experience, all things being equal, the LPC says they are more vulnerable to losing out to older workers if they are both competing for low-wage jobs. The LPC also produces recommendations each November on what the minimum wage rates should be the following April.
What is the Real Living Wage?
There is also a third rate of pay called the Real Living Wage. This is decided by the Living Wage Foundation (LWF) and the rate is set based on up-to-date living costs, taking into account the cost of bills, the weekly shop and other measures. It also applies to all workers over the age of 18.
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The Real Living Wage is a scheme which businesses and employers can sign up to voluntarily. Real living Wage employers include companies such as Aviva, Ikea, Nationwide, Burberry and Lush.
As of writing, the foundation has the rate set at £10.90 an hour - and £11.95 in London. However, the new Real Living Wage rates will be announced later this month on October 24 and the foundation says it "expects" a significant increase.
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