Understanding the difference between the National Minimum Wage, the Living Wage and even the Real Living Wage is useful if you’re self-employed – regardless of whether you’re a sole trader, limited company freelancer or contractor, or small business owner.
In this straightforward guide we’ll explain what each of these terms mean, why they matter and look at the amounts that must be paid legally to any employees.
What’s the minimum wage?
The National Minimum Wage (NMW) was introduced in April 1999 based on advice put forward by the Low Pay Commission, whose role is to advise the government on such things.
The minimum amount someone can be paid hourly by law depends on their age and if they work as an apprentice. But while all employees – whether full or part-time, agency or umbrella workers – receive the minimum wage, sole traders aren’t entitled to it and limited company directors do not have to pay themselves minimum wage where there is no contract of employment. This is in addition to; volunteers, the armed forces, family members of employers living in the employer’s home, prisoners and several other groups.
When does the minimum wage go up?
The NMW tends to increase at the start of each tax year, broadly in line with inflation. A full breakdown of the NMW for the 2026/27 financial year is as follows:
| Age | Minimum wage (hourly) |
| 21 and over (National Living Wage) | £9.50 |
| 21 to 22 | £9.18 |
| 18 to 20 | £6.83 |
| Under 18 | £4.81 |
| Apprentice | £4.81 |
Apprentices are entitled to the apprentice rate if they’re either aged under 19, or are aged 19 or over and in the first year of their apprenticeship.
Why don’t the sole traders get minimum wage?
As they are in business by themselves, sole traders are not classed as employees and hence do not qualify for employment rights, such as the minimum wage.
Saying that, there have been cases of self-employed workers claiming employment rights from their client, including the minimum wage. The case of Uber drivers winning rights from this gig economy giant is a prime example and could pave the way for other similar workers – like courier and taxi drivers – to do the same.
What’s the National Living Wage (NLW)?
The NLW is the NMW in everything but name. The Chancellor at the time, George Osborne, rolled out the NLW in 2016 for those aged 25 and above.
In simple terms, the NLW is another tier to the minimum wage. But rather confusingly, it is not linked to the cost of living in the UK. On 1 April 2021, the age at which people are entitled to it dropped from 25 to 23 and on 1 April 2024 from 23 to 21.
Okay, so what’s the ‘Real Living Wage’?
Just to make things even more confusing, there is also something called the Living Wage. This is different to the National Living Wage and is calculated based on the cost of living. Still following? Good, we’ll carry on.
The Living Wage (also known as the ‘Real Living Wage’) was proposed by the Living Wage Foundation – an organisation that campaigns for fair pay since 2011. The body encourages businesses to pay employees at least an hourly rate reflective of the real cost of living. For 2026/27, it sits at £13.45 in the UK other than in London, where it’s recommended that firms pay employees at least £14.80, given the higher living costs.
Unlike the NMW, the Real Living Wage is voluntary and not a legal requirement. That said, over 16,000 businesses across the UK are committed to paying employees this amount at least.
Living wage vs minimum wage: what’s the difference?
Explained in a sentence, the National Living Wage is a rate set for people over the age of 21 and is higher than the National Minimum Wage, which has several categories as shown in the table earlier on.
Why does minimum wage matter to self-employed people?
In many ways it doesn’t – not if you work on your own and your company hasn’t got any employees other than yourself.
That said, if you run a business and hire people, it’s something you need to pay close attention to. It’s illegal to pay employees less than the minimum wage – fines can reach £20,000 per worker and you could be publicly named and banned from being a company director for up to 15 years.
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