The National Minimum Wage is again going up in April this year and with it some slight amendments. After the recommendations set out by the Low Pay Commission to the government published earlier this month, they have announced the increased National Living Wage (NLW) and National Minimum Wage (NMW) rates which will come into force from April 2021.
Do not worry though, we’ve got all the details for you here, including the new amends and new figures. We have even got a little advice for businesses who should be readying themselves for the upcoming changes.
What is the Low Pay Commission?
The Low Pay Commission (LPC) is an independent public body within the UK. Established in 1997, it advises the government every year on the National Minimum Wage and National Living Wage. The LPC is an advisory non-departmental public body of the Department for Business, Energy and Industrial Strategy (BEIS). It is made up of nine Commissioners: three from employer backgrounds, three from employee representative backgrounds, and three independents.
Who is entitled to minimum wage?
The National Minimum Wage (NMW) is the lowest hourly rate that all workers are entitled to. It currently applies to under 25s, or the National Living Wage (NLW) for over 25s. This is a legal requirement for any organisation and any staff contracts below minimum wage are not legally binding. To pay eligible persons less than the minimum wage is also a criminal offence.
How will it change?
Aged 23+ (NLW) rising from £8.72 to £8.91 – An increase of 2.2%
21-22 year olds rising from £8.20 to £8.36 – An increase of 2.0%
18-20 year olds rising from £6.45 to £6.56 – An increase of 1.7%
Under 18s rising from £4.55 to £4.62 – An increase of 1.5%
Apprentices rising from £4.15 to £4.30 – An increase of 3.6%
What are the other amendments?
The eagle-eyed readers may have already noticed the subtle amendments from the chart above. The NLW age threshold has been reduced from 25 and over, to 23 and over. 2020 was a very challenging year for younger workers, especially those working in hospitality and non-essential retail sectors.
The below is taken directly from the LPC’s 2020 Report Summary of findings, where they state that their recommendation to reduce the NLW age threshold from 25 to 23 was based on seven arguments.
“Firstly, that use of the 21-24 year old rate amongst that age group is low. This continues to be the case; fewer than 100,000 workers aged 23 to 24 have a stated hourly rate below the NLW.
The second argument was that moving this age group up to the NLW would result in reasonable bites (defined as the ratio of the minimum wage to median hourly pay for that age group). This is hard to measure given limitations with the pay data, but we judge that the bite for this group is still likely to be below the bite for 21 to 22 year olds.
Third, that 23 to 24 year olds are similar to 25 year olds across a range of indicators. This is true in terms of the ways they have been affected by the lockdown – including the proportion furloughed or working no hours, and the rates at which they are returning to work. However, their unemployment is increasing at a faster rate than older workers.
Fourth, that stakeholders agreed the NLW age threshold should be lowered. This year, stakeholder views were more mixed, with some business groups including the Federation of Small Businesses and British Chambers of Commerce calling for a delay. However, most business representatives continued to support the change, as well as all unions.
Research evidence supports the change. The last time the age threshold of the adult rate was lowered was in 2010, and econometric analysis found no significant negative employment effect. This is particularly relevant as the change took place in the aftermath of the financial crisis.
Demographic changes over the next few years are also likely to reduce the risk. The size of the 21-24 year old age group will get smaller, which should help to protect them.
The final argument was that record high employment and a tightening labour market were likely to offer protections to young workers. Although this argument has not stood the test of this year, and the position of 23 and 24 year olds has weakened in the pandemic, we judge that on balance, the majority of arguments made in the youth review continue to support the change.”
LPC Report Summary of findings
What does this mean to employers?
2020 shall we say, has been a little bit of a nightmare for all of us. It has been extremely so for both employers and employees. Studies show that the number of people earning under the minimum wage in the UK has risen by more than 5 times since the start of the pandemic to around 2 million! The Office of National Statistics (ONS) reported that there were 2,043,000 employees (16 or over) being paid below the legal limit in April 2020, which is more than four times that of the year before (409,000 jobs).
So, what do employers need to do? Well, usually organisations would simply have to raise staff wages inline with the new recommendations. However, due to the amendments in the threshold of the NLW this will involve a lot more changes within the company. This could obviously start to affect company policies and working hours as of 1st April, those employees from 23-25 will be in for quite a considerable bump in salary.
Therefore, employers, if you haven’t already looked at this and started to make considerations – now is the time to start. Here is a little extra information that could help with your calculations. Every job has additional payments, some of which are included in NMW and some which are not, here is a helpful list:
Included in minimum wage calculations
- Income Tax and National Insurance contributions
- Wage advances or loans
- Repayment of wage advances or loans
- Repayment of overpaid wages
- Items staff pay for that are not essential for the job or paid for voluntarily, such as meals
- Accommodation provided by an employer above the offset rate (£8.20 a day or £57.40 a week)
- Penalty charges for a worker’s misconduct
Not included in minimum wage calculations
- Payments that should not be included for the employer’s own use or benefit e.g. if the employer has paid for travel to work
- Things the worker bought for the job and is not refunded for; tools, uniform, safety equipment
- Tips, service charges and cover charges
- Extra pay for working unsocial hours on a shift
If you need any more information, contact us direct or visit gov.uk.