9 Nov 2018

The national minimum wage, the national living wage and the real living wage

Illustration of a book

The UK government sets two official wage rates that employers must pay to their workers – the national minimum wage and the national living wage.

But almost 5,000 businesses voluntarily meet a higher rate – the living wage. This is often referred to as the ‘real’ living wage to distinguish it from the government’s national living wage.

Here, we explain how these wage rates work, how they differ and what they mean for you.

National minimum wage

Who gets the minimum wage?

You should be paid at least the minimum wage if you’re working, over the school leaving age and under 25. There are some exceptions to this rule, including:

  • Self-employed workers
  • Company directors
  • Volunteers
  • Members of the armed forces
  • Workers on a government employment programme or pre-apprenticeship scheme
  • Higher/further education students on a work placement up to one year long
  • Apprentices under 19 or in the first year of their apprenticeship (in which case you should be paid at least the apprentice rate, which is currently £3.70)

How much is the minimum wage?

The minimum wage is worked out as an hourly rate, although it still applies to people who aren’t paid by the hour. The current minimum wage is:

  • £4.20 if you’re under 18 – increasing to £4.35 in April 2019
  • £5.90 if you’re aged between 18 and 20 – increasing to £6.15 in April 2019
  • £7.38 if you’re aged between 21 and 24 – increasing to £7.70 in April 2019

Note that tips don’t count toward your minimum wage, but bonuses can. Also, you may be entitled to a higher wage for things like overtime and working on bank holidays.

How is the minimum wage calculated?

The government reviews the national minimum wage every year. It gets a report from an independent body called the Low Pay Commission in October, which researches and analyses data about low paying jobs. If the government decides to adjust the minimum wage, the change will happen in April the following year.

National living wage

Who gets the national living wage?

You should get at least the national living wage if you’re working and aged 25 or over. The national living wage has the same exceptions as the minimum wage (e.g. you aren’t eligible if you’re self-employed, a volunteer, etc).

How much is the national living wage?

The current national living wage is £7.83 per hour – this will increase to £8.21 in April 2019. Interestingly, the national living wage was only introduced in 2016, at a rate of £7.20 per hour.

How is the national living wage calculated?

Despite its name, the national living wage isn’t based on living costs. Instead, it’s based on a percentage of median earnings in the UK. At the moment, the government’s target is for the national living wage to reach 60% of median earnings by 2020.

Real living wage

Who gets the real living wage?

Over 4,700 businesses in the UK have committed to paying at least the real living wage to all workers over 18. More than a third of these companies are FTSE 100 or household names. You can search for participating employers on the Living Wage Foundation’s website. And yes, Monzo is an accredited living wage employer!

How much is the real living wage?

The real living wage is currently £10.55 per hour within London and £9.00 per hour outside London. These rates were announced on Monday 5 November 2018.

How is the real living wage calculated?

Unlike the national living wage, the real living wage is actually based on living costs.

It’s calculated every year by the Resolution Foundation, which is a non-partisan think tank (essentially, a research organisation that isn’t biased towards a particular political party). The work is overseen by the Living Wage Commission – a group of employers and people who promote the real living wage.

The Resolution Foundation works with members of the public to decide on a ‘basket’ of goods and services that people should be able to afford. It then works out how much you’d need to earn to afford the basket. The calculation is quite complicated, as it takes into account tax, benefits and a variety of family types.

This data is used to work out an acceptable full-time salary, before being converted into an hourly rate.

Historical comparison

We’ve set out the minimum, national living and real living wages for the past five years, so you can compare them and see how they’ve changed:

  National minimum wage**     National living wage* Real living wage  
Age Under 18 18-20 21-24 25+ 18+  
Area National       Outside London Within London
2014/2015 £3.79 £5.13 £6.50 - £7.85 £9.15
2015/2016 £3.87 £5.30 £6.70 - £8.25 £9.40
2016/2017 £4.00 £5.55 £6.95 £7.20 £8.45 £9.75
2017/2018 £4.05 £5.60 £7.05 £7.50 £8.75 £10.20
2018/2019 £4.20 £5.90 £7.38 £7.83 £9.00 £10.55

*The national living wage was introduced in April 2016.

**The national minimum wage used to be updated in October. Starting in 2017 it has been updated every April along with the national living wage.


Here at Monzo, we believe in fair pay. That’s why we’re an accredited living wage employer.

We hope this guide has helped you understand the real living wage, the benefit of getting it, and the importance of offering it. Next, why not read our guide on earning money or learn how inflation can impact your living costs.

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