The national living wage and salary exchange

22 February 2016
Most individuals age 25 or over on the national minimum wage (NMW) will see their salary increase by 50 pence per hour from 1 April 2016.

This article provides more information on how this change affects salary exchange arrangements.

Who does this change affect?

Individuals age 25 and over with salary exchange arrangements and their employers.

What are the changes?

From 1 April 2016, a new mandatory national living wage (NLW) will apply to individuals age 25 or over who are not in the first year of an apprenticeship. 

The level will initially be £7.20 per hour which is 50 pence more than the NMW.  Based on a 35 hour week, this represents an annual salary increase of £910.

The new NLW follows recent rises in the NMW rates to:

  • £6.70 for 21s and over
  • £5.30 for 18 to 20 year olds
  • £3.87 for under 18s
  • £3.30 for apprentices (this rate applies to all apprentices in year 1 of an apprenticeship, and 16-18 year olds in any year of an apprenticeship)

Salary exchange: important point

Most advisers will be aware that when using salary exchange, it is not possible to reduce salary below the NMW. 

From 1 April 2016, it will be necessary to ensure that for those over 25, who are not in the first year of an apprenticeship, that any salary exchange arrangement does not reduce salary below the NLW. 

As well as any new salary exchange arrangements, is therefore vital to ensure that any current salary exchange arrangements are reviewed before 1 April 2016 to ensure that the NLW is considered as well as the NMW. 

About the author

Fiona Hanrahan

Senior Product Insight and Technical Support Analyst

Fiona has worked in financial services since leaving university in 1998 and has experience of working in technical support and product design as well as working as a financial planner. She’s a Chartered Financial Planner and a Fellow of the Personal Finance Society.

Last updated: 22 Feb 2016

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