From 1^st April, National Minimum Wage rates and age thresholds are changing.

 

Minimum earning rates are separated into 3 different bands according to age: 

 

Now, from 1^st April 2024, the National Living Wage age band is being extended to include those workers who are 21 and over. Prior to this date, only those aged 23 and over receive the NLW.

 

Minimum earning rates apply equally to every company, no matter what their size. 

New Rates

In addition, there is also an Apprentice Rate for young people on the Apprenticeship scheme who are under 19. This rate also applies to those over 19 who are in their first year of the apprenticeship. 

 

 

This April’s rise in the National Living Wage is the largest in over a decade – a 10% rise, compared to the current inflation rate of 4%.

 

Though a welcome change for many employees, these record increases in pay levels are likely to impact businesses at a time when the economy remains uncertain.

How Are Rates Set?

The Low Pay Commission is an independent body that advises the government about the National Living Wage and the National Minimum Wage. 

 

Sponsored by the Department for Business and Trade, the LPC was established as a result of the National Minimum Wage Act 1998 and makes recommendations every November for the government to review. The changes are implemented the following April. 

 

The Commission is made up of nine Low Pay Commissioners, drawn from a range of employee, employer and academic backgrounds. 

 

The rates for the National Living Wage are based on the government’s target of reaching 66% of median earnings in 2024. April’s rate rise will take the minimum wage to this target. 

Controversy

The Labour Party first committed to introducing a minimum wage in their 1992 manifesto, under the leadership of Neil Kinnock, and at the time it was seen as a vulnerability rather than a vote winning position. 

 

When it was eventually introduced on 1^st April 1999 by the Labour government under Tony Blair, the measure caused considerable controversy: at that time many opponents believed that a minimum rate of pay would destroy jobs, make business unprofitable and cause significant inflation. 

 

Employers were confused about how it should be applied, and some threatened to boycott the legislation. 

 

Caution was the guiding principle when deciding how much this new minimum wage should be. Set at around 45% of average pay, compared to the current two thirds target, the rate was £3.60, with a reduced rate of £3.00 for workers aged 18 to 21. There was no minimum wage for those aged 16 to 17.  

 

When accepting the LPC’s rates last autumn, government forecasts showed a 2024 pay boost worth over £1,000 for 2 million low-paid workers.

 

According to the government, successive rises to the National Living Wage mean that full-time workers will be more than £9,000 better off than they would have been in 2010.

 

Although this year’s increase will be welcome news to lower-paid workers who are still contending with high energy bills and the cost of living, the CIPD warns that some sectors will struggle compared to others.

 

It cautions that certain industries, for example hospitality, will be disproportionately affected by minimum wage rises compared to sectors like the professional services. 

 

With a higher proportion of low paid workers, other sectors such as retail, manufacturing, cleaning and maintenance are more vulnerable to experiencing an impact on profitability and growth when statutory pay goes up.

The Low Pay Commission has recently updated its definitions of low-paying occupations and industries to ensure data stays relevant once the NLW meets its target this year.

 

Two new occupation groups have been incorporated, covering low-paying roles in education and healthcare, affecting workers such as teaching assistants and hospital porters. Several new industry groups have also been added, including transport and non-food processing. 

The Real Living Wage

Just to complicate matters, the national living wage is different to the real living wage.

 

The ‘real living wage’ is a voluntary rate proposed by the Living Wage Foundation that has no statutory basis and is higher than government rates, currently standing at £12 per hour. 

 

Employers can choose to pay it to their staff and around half a million UK workers currently receive it. 

 

Another element to the RLW is the London Living Wage, which takes into account London weighting. Covering all boroughs in Greater London, the current hourly rate of £13.15 is designed to reflect higher costs faced for London workers. Around 2,500 employers pay the London Living Wage. 

Enforcement

By law, employers must pay workers the correct minimum wage. Accurate pay records must be kept and made available when requested. The employer must also resolve any backdated non-payment of minimum wage, even if they no longer work for them.  

 

How are issues resolved?

Every year the Department for Business and Trade publishes the names of employers who have failed to pay the national minimum wage following investigations by HMRC. 

 

This February, 524 employers were named and shamed for failure to pay the NMW, including identifying the main reasons for underpayment. Many of the reasons for the NMW breaches were of a technical or inadvertent nature, rather than a blatant failure to pay the proper hourly wage. 

 

Rules around minimum wage calculations can be complicated for employers, particularly when it comes to certain categories of workers and specific situations, such as those who ‘live in’. In these circumstances, there are limits on what an employer can charge for accommodation – known as the Accommodation Offset. 

 

Another complex area concerns deductions to cover the cost of tools or uniforms, as these may reduce pay to below the required rate.  

 

Preventing errors is far less costly, both financially and reputationally, so it makes sense for all businesses to ensure they’re fully up to date with the latest regulations and seek professional advice where there’s any uncertainty. 

 

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