Basically the National Minimum Wage (NMW) came first. This was first introduced through the National Minimum Wage act in 1998 and gave minimum rates for all workers from 18 years of age. The starting rates in 1999 were; £3.00 p/h (18-21yrs) and £3.60 p/h (over 22yrs). It also provided a framework for the low pay commission (set up around the same time), to make recommendations to government on rates and increases annually.
The National Living Wage (NLW) was introduced in 2016 as an amendment to the above 1998 act. It was thought to be inspired by the Real Living Wage at the time. It saw a rate introduced for those 25yrs & over, called the National Living Wage (NLW). Other additions at the time included rates for young workers (16 -17yrs), & for apprentices. In 2021 the over 25yrs NLW category dropped to also include those aged 23 & 24yrs of age.
The National Minimum Wage (NMW) & National Living Wage (NLW) are both mandatory, employers must pay this to qualifying employees.
Introduced in 2011, the Real Living Wage is voluntary (& a more generous alternative to the NMW and NLW). Set by the living wage foundation, it is independent of Government.
There are 2 rates, one for the UK (outside of London) and the London Real Living Wage. The current rates are £12 per hour UK rate & £13.15 per hour London rate. The real living wage is currently paid voluntarily by some 14,000 businesses to around 460,000 workers, including Lidl, Ikea & Ulster Bank.
Interestingly, the Real Living Wage is the only one to be calculated according to the actual cost of living in the UK & in London. The NMW & NLW however, are set by Government, and are based on a proportion of median level earnings.
Firstly, all NMW categories continue to rise, 2024 will see the highest increase in cash terms since its introduction in 1998. On April 1st, all categories are increasing between 9.8% and 21.2%. So, what does that look like in real life?
For example, an employee aged 23 & over will see an hourly increase from £10.42 to £11.44, this is equivalent to around £2,000 per year for a full time employee.
However, this year brings further challenge with changes of categorisation. The highest rate is currently paid to those 23 years & above, from April 1st 2024, this rate will be applicable to those aged 21 years & above. This means an even greater hike for those aged 21& 22 who will not only increase rate but move into a higher category. For those individuals their rate will increase by 12%, this equates to around £2,500 per year for a full time employee.
Apprentices are also entitled to NMW, this has also increased for 2024, the apprenticeship rate has stayed in line with the under 18 years NMW, increasing by £1.12 per hour. Note: Apprentices are entitled to the apprentice rate if they’re either aged under 19 or aged 19 or over and in the first year of their apprenticeship, otherwise they are entitled to be paid the NMW for their age category.
Be mindful also that minimum wage rates for agricultural workers in Northern Ireland are different from the National Minimum Wage and National Living Wage rates. These minimum wage rates for agricultural workers are set by the Agricultural Wages Board (AWB) for Northern Ireland. These too are proposed to increase by over 6% on April 1st.
Start with finding out what the direct financial impact will be, identify who will be entitled to a statutory increase and quantity how this will affect wage percentages.
Be mindful then to consider those who may not be directly impacted by the uplift, but who you may wish or need to raise in order to retain equity or parity. For example, if your Entry level employee is on £10.42 per hour currently and your Supervisor is on £11.42 for example, they will both be on the same rate come April 1st, despite one being employed as a Supervisor with the additional responsibility that entails.
You may also find the change to age categories may mean a wider consideration of the workforce in general in order to maintain the integrity of your pay bands or scales.
It is also not only those below NMW you need look at, but perhaps those in or around it, in order to retain seniority of position for example.
So, aside from the direct impact of your employees rate increases, how else can you prepare?
You may also look to try and pass on some of these pressures by increasing your customer / client prices for example. Just in terms of “preparedness”, you may also wish to anticipate, or enquire if your suppliers intend to increase their charges in light of their rising staff costs.
Another option is to focus efforts on increasing productivity, that is increases to NMW need not automatically lead to reduced profit margins, an uptick in productivity may help to offset impact on the bottom line.
Implementing or improving Demand Management is also worth considering. This methodology allows companies to better forecast and plan for demand in services and products. It is relevant in most industries and includes strategies from proactively managing staff rosters and targeted annual leave usage, to improved use of data and automation.
HMRC’s enforcement of employers’ obligations to pay workers the minimum wage is focused on the workers’ right to receive the remuneration they are entitled to.
Potential outcomes of a National Minimum Wage Audit, or specific Investigation include; Penalty repayment at 200% of arrears owed to employees – up to £20,000 per employee, being listed as part of HMRC’s Naming & Shaming Scheme, as well as being subject to criminal investigation and prosecution.
Fortunately, or unfortunately perhaps, the majority of “named and Shamed” employers are thought to be unknowingly underpaying National Minimum Wage, as opposed to intentionally.
So what can we do in our best efforts to avoid getting it wrong?
The burden of proof in NMW claims lies with the employer, with the effect that compliance officers will presume that a worker has been paid at a rate below NMW unless the employer can show otherwise. These records need not be in any specific format but they must be retained and accessible.
Employers must ensure to take account of additional time that counts as working time for NMW purposes. This can include induction training, supervision, commuting, travelling time, as well as on-call time.
Not reimbursing travel expenses, such as car mileage or public transport fares, can bring workers’ average pay below the NMW. In addition, any expenses paid to workers, do not count towards the calculation of the NMW compliance.
In relation to deductions then, the majority of deductions made from workers’ pay will reduce pay for NMW purposes. One of the biggest risks here is uniforms. For example if you require employees to wear specific items and staff are required to purchase or pay for such items, any deductions made from pay or payments out by the worker in respect of such uniforms, will reduce the NMW pay, even if it is “just a deposit”.
Failure to correctly categorize working arrangements, such as the mislabeling of consultants, who are in fact workers, can lead to NMW underpayments.
Even when there is clearly an employment relationship, for the purposes of NMW calculations there are 4 types of work; salaried, time, output and unmeasured
Compliance with NMW is assessed differently for hourly rate paid workers and salaried workers, and therefore miscataloging workers can lead to significant NMW underpayments.
Not all payments made to workers count towards the calculation of the NMW, for example tips and gratuities should not be included in calculations, equally premium payments (for example, extra pay for working bank holidays or overtime) should not be included in calculations. Doing so could risk an employer believing they are compliant when they are not.
If you need any support with implementing the NMW / NLW changes coming in April 2024, or if you have queries around your National Minimum wage compliance, do reach out to us.