The National Minimum Wage Act 1998 is one of the most important employment regulations in the United Kingdom throughout history. This legislation provides a legal minimum wage that workers should be entitled to receive. It was introduced and enacted to benefit employees, to ensure they were not receiving unacceptably low wages, and to provide assurance that each could earn an acceptable wage to live.
In this guide, we will explain the law, why the law came into effect, how it works, and its implications for both workers and employers today.
Introduction to the National Minimum Wage Act 1998
The National Minimum Wage Act 1998 was introduced into law on 1 April 1999. It was enacted by a Labour government under Tony Blair as the prime minister. Before this, there was no legislation (the act) in place to ensure a low-paid worker (one that made minimum wage), or anyone, had a guarantee of a fair minimum wage in the UK.
The act set out the businesses or employers’ requirement that they’d pay workers no less than an hourly rate of at least some minimum wage, as the law intended. It was a significant advance in UK law to strengthen the rights of low-paid workers against poverty pay.
Why did we introduce the National Minimum Wage?
The government introduced the national minimum wage for many reasons:
- Fair pay: To prevent workers from being exploited with very low levels of pay.
- Reduce poverty: To ensure that workers had enough income to be able to pay for basic living requirements.
- Encourage equality to decrease the wage gap between various groups of workers.
- Stimulate the economy to provide more spending power and less reliance on benefits.
Before this legislation, there were workers being paid as little as £1 an hour. The law acts as a safety net to stop this type of exploitation.
Who Is Included in the National Minimum Wage?
The law applies to almost all workers in the UK. This includes:
- Full-time workers
- Part-time workers
- Agency workers
- Casual workers
- Apprentices (at a lower apprentice rate)
- Workers on probation
The law does not apply to self-employed workers, volunteers, company directors, and armed forces members.
How Are Minimum Wage Rates Decided?
The rates are annually reviewed. The Low Pay Commission, an independent organization, offers advice to the government on what the rates should be. Rates are usually determined based on:
- Age of the worker
- The worker is an apprentice.
- The economic environment, e.g., inflation and cost of living
Overall, this mechanism ensures balance in wage rates for workers and businesses.
National Minimum Wage and National Living Wage
The system has two main tiers: the National Minimum Wage (NMW) applies to workers aged under 23 years of age. The National Living Wage (NLW) was introduced in April 2016 and applies to workers aged over 23 years old at a higher rate. Both are legal minimums, and both have the intention of making pay fairer across the workforce.
Minimum Wage Rates
The minimum wage rates from April 2025 onwards are:
- Aged 23 and over (NLW): £11.44 per hour
- Aged 21-22: £10.18 per hour
- Aged 18-20: £7.49 per hour
- Aged 16-17: £5.28 per hour
- Apprentices – £5.28 per hour
The rates will change each April, so it is important for workers and employers to know what they are being paid (and what they are required to pay).
Rights of Workers Under the Act
Under the act, workers already have several rights. Workers are entitled to be paid the minimum hourly wage, to see their payslip, and to challenge their employer if they believe they are being paid below minimum wage. Workers can recover unpaid wages through litigation, and they also have rights to be treated the same as all other workers who may ask questions about pay. This means if [a worker] raises a concern about pay, they will be reasonably protected from losing their job.
Responsibilities of Employers
Employers are also subjected to obligations under the act. They must not only pay at least the correct minimum wage but also keep adequate, accurate wage records and must allow a worker to see those records if they request to do so. If an employer pays a normal minimum wage and is required or found to only have paid some lesser wage, the employer must make the back payment immediately. An employer who fails to follow the rules can face not only substantial monetary fines but also legal action as a result, and the employer’s name can be exposed publicly under the government’s “naming and shaming” policy.
How the Law is Enforced
Enforcement of the National Minimum Wage Act 1998 is enforced by HM Revenue and Customs (HMRC). HMRC investigates complaints, conducts inspections, and brings enforcement action against employers that break the rules. If underpayment is discovered, employers are required to pay back the money owed, often with penalties. The strict enforcement of the scheme should give fairness in the labor market.
The Impact of the Minimum Wage Act
The minimum hourly wage has had a significant impact on working life in the UK. It has lifted millions of people out of poverty wages, reduced inequality, and offered workers a more secure financial life. The minimum wage generally has also contributed to improvements in workplace morale and productivity by guaranteeing and enabling fairer pay to employees. Although there have been complaints from some employers (particularly from smaller businesses) that the minimum wage has increased their costs. Research from academics has shown that these costs are extremely marginal in comparison to the overall benefits to society, which are much more substantial.
Clearing Common Myths
Many people are still confused about how the law really works. One of the most common misconceptions is that employers have ways of getting around paying it. This is untrue; the law is obligatory. Another misconception is that only full-time staff are covered, but in fact, the law applies to all workers, including part-time, temporary, and casual staff. The third misconception is that the law only applies to large businesses; however, in fact, all employers in the UK, regardless of size, must comply.
Challenges and Critiques
Despite the law being wildly successful, there are still problems. The cost of living has risen considerably, and while the law sets a minimum wage, that does not always cover basic needs. Some employers try to get around the law by putting staff on fictitious self-employment agreements and directing employees to come in and work overtime unpaid. There are enough employer loopholes to highlight the need for further accountability and transparency.
