The national living wage and salary exchange

Most individuals aged 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 aged 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 aged 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 21-year-olds 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- to 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.

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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, any salary exchange arrangement does not reduce salary below the NLW.

As well as any new salary exchange arrangements, it 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.