Chancellor Rishi Sunak announced at last week's budget increases to the National Living Wage and National Minimum Wage rates which are set to benefit over 2m of the country's lowest-paid workers.
The National Living Wage - which applies to those aged 23 and over - is going to rise by 6.6% from £8.91 to £9.50 per hour. The increase equates to an annual pay uplift of over £1000 for someone working full-time.
The National Minimum Wage for those aged 21 & 22 is seeing an increase of 9.8%, with further increases across the board for those aged 18 to 20, under 18s, and Apprentices.
Source: https://www.gov.uk/government/publications/minimum-wage-rates-for-2022
WHAT IS THE NATIONAL LIVING WAGE?
Introduced in April 2016, it’s essentially a statutory minimum hourly rate that employers must pay employees who are 23 years old and above (it was previously for those aged 25 and above but the age was lowered in 2021). It was introduced as an extension of the National Minimum Wage which was already in place.
It’s not to be confused with the ‘Living Wage’ which is a non-mandatory amount recommended by an independent campaign group.
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, they said there was evidence to suggest that younger workers are more at risk of being priced out of jobs than older workers, with worse consequences if they end up unemployed.
However, following a review in 2019, the NLW threshold age was lowered from 25 to 23 in April 2021, with plans to extend it even further to those aged 21 and over by 2024.
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 21 or 23.
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 workers’ 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.
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