Minimum pay rates set to increase from April 2021

On 1st April 2021, the National Living Wage (NLW) increased. In addition to the usual annual increase, this year also sees NLW extended to those aged 23 and 24. 

Chancellor Rishi Sunak estimates that the rise will benefit over 2 million people.

National Minimum Wage rates have increased too. So, are you set to get a boost in your next pay packet? Or, if you’re a business owner, what do you need to know about these changes?

The NLW increased from 1st April 2021 from £8.72 to £8.91 per hour. This represents an increase of 2.2% for those aged 25 and over, and a substantial increase of 8.7% for those aged 23 and 24 who previously fell outside of the NLW age bracket.

Workers aged 22 and under, along with Apprentices, who receive the National Minimum Wage (NMW) have not been left out and have also seen an increase to their pay. 

The Apprentice rate applies to workers undertaking an apprenticeship who are aged 19 or under, or aged over 19 but in their first year of the apprenticeship.

WHAT IS THE NATIONAL LIVING WAGE?

Introduced in April 2016, it’s essentially a statutory minimum hourly rate that employers must pay employees. It was introduced as an extension of the National Minimum Wage which was already in place. Up until April 2021, it applied to those aged 25 and over. This has now been extended to include those aged 23 and 24.

It’s not to be confused with the ‘Living Wage’ or the ‘Real Living Wage’ which is a non-mandatory amount recommended by an independent campaign group. They believe the amount set by the government is not sufficient, and also that there should be a London weighting for those living in the capital due to higher living costs.

WHO DECIDES THE NLW / NMW?

Simply put, the Government.  Reviewed annually and announced in the Budget by the Chancellor, it’s based on advice provided to the Government by an independent advisory body called the Low Pay Commission (LPC). This body is made up of employers, trade unions and academics.

WHY DO YOUNG PEOPLE RECEIVE LESS PAY?

According to the LPC, there is evidence that younger workers are more at risk of being priced out of jobs than older workers, with worse consequences if they end up unemployed.

Since the introduction of the NLW in 2016, the economic situation has moved on. The last few years have seen more young people in employment as the UK hit a record high. It was reported that many workers within the 23/24 age bracket were already receiving the over 25 rate. The LPC has said these factors are what has enabled them to recommend the extension of NLW to include younger age groups.

In addition, it appears likely that the NLW is going to be extended further to include those aged 21 and above in the near future.

WHAT DO THESE INCREASES MEAN FOR EMPLOYERS?

Employers must pay their employees at the relevant minimum hourly rate. Employers who breach NLW and NMW rules could face legal action from employees and investigation by HMRC, which can result in financial penalties as well as being publically ‘named and shamed’.

It’s also worth noting that this isn’t just something which should be reviewed every April when the rates increase, you need to diarise any workers’ birthdays which will take them to the next level, such as ages 18, 21 and 23, and track any workers on recognised Apprenticeships.

There have been several high profile cases that have seen employers who have inadvertently fallen foul of the regulations. It’s not just the rates of pay you should consider; you also need to look at factors such as your practices relating to working time, pay periods and whether any deductions are being made from worker’s pay. It can be a difficult field to navigate so we recommend taking specific legal advice relating to your individual circumstances.

Legal obligations aside, workers who are correctly remunerated are going to feel more valued and engaged, so it really is in the employer’s best interest to make sure you’re getting it right.

Another consideration for employers is, although your pay rates may be above the legal minimums, these increases can ‘eat’ into any other pay rates such as premiums paid for unsocial hours. Suddenly those enhanced rates might not seem so attractive to your staff.  So, it might be relevant to you to look at your pay structure as a whole to ensure your pay rates are competitive.

Our Consultants have expert market knowledge, so if you’d like to discuss this further, please contact your local branch.