Emily Edwards
Posted on 1 Dec 2020

National minimum wage increases announced for April 2021

Following the recommendations of the Low Pay Commission published earlier this month, the Government has announced the increased National Living Wage (NLW) and National Minimum Wage (NMW) rates which will come into force from April 2021.

In his comprehensive spending review, Rishi Sunak confirmed that the NLW will increase 2.2% to £8.91 from 1 April 2021 and will become available to people aged 23 and above, down from the current age of 25.

Who gets the minimum wage?

All ‘workers’ are entitled to receive at least the NMW, which currently applies to under 25s, or NLW, for over 25s, for each hour that they work. This is a legal requirement for all workers and cannot be circumvented; contracts for payments below the minimum wage are not legally binding and failure to comply is a criminal offence. The minimum rates, set out in the table below, are gross of tax and are the minimum that should be paid regardless of tax payer status.

What is the Low Pay Commission?

The Low Pay Commission (LPC) is an independent public body that advises the Government each year on the NMW and NLW. The LPC is a social partnership body, made up of nine Commissioners; three from employer backgrounds, three from employee representative backgrounds, and three independents, including the Chair. This year, Government has accepted in full the recommendations made by the LPC.

The National Minimum Wage Rates

 

Rate from 1 April 2020

Rate from 1 April 2021

Increase

Aged 25 and above (NLW)*

£8.72

£8.91

2.2%

21-22 Year Old Rate

£8.20

£8.36

2.0%

18-20 Year Old Rate

£6.45

£6.56

1.7%

16-17 Year Old Rate

£4.55

£4.62

1.5%

Apprentice Rate

£4.15

£4.30

3.6%

Accommodation Offset

£8.20

£8.36

2.0%

* The age threshold for NLW has been lowered to include 23 and 24 year olds from 1st April 2021.

Moving the NLW age threshold

This year has been a particularly challenging year for young workers. More than half of the youngest workers (aged 16-18) work in the sectors that have been hit hardest by lockdown measures, including hospitality and non-essential retail.

The LPC states that its recommendation to reduce the NLW age threshold was based on seven arguments:

  1. "The use of the 21-24 year old rate amongst that age group is low; fewer than 100,000 workers aged 23-24 have a stated hourly rate below the NLW;
  2. 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);
  3. 23-24 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;
  4. Stakeholders agreed that the NLW age threshold should be lowered;
  5. Research evidence supports the change. The last time the age threshold of the adult rate was lowered in 2010, econometric analysis found no significant negative employment effect. This is particularly relevant as the change took place in the aftermath of the financial crisis;
  6. 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; and
  7. 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, the LPC decided that on balance, the majority of arguments made in the youth review continue to support the change."

What this means for employers

2020 has brought unforeseen challenges for us all, employers and employees alike. Indeed, recent studies have shown the number of people in the UK earning below the minimum wage has risen more than fivefold to 2 million since the start of the coronavirus pandemic, with the lowest-paid workers in Britain suffering the most financial damage. The Office for National Statistics has reported that there were 2,043,000 jobs where employees aged 16 or over were paid below the legal minimum in April 2020, more than four times the 409,000 jobs a year earlier.

The reality of the increased NMW and NWL, which now applies to those aged 23 and above (previously it was for 25 and over only), means that employers which might not previously have had to be concerned about the niceties of the NMW regulations could find that their policies around pay and working time actually take some of their employees below NLW and/or NMW rates. The Government's announcement in February earlier this year indicated that it would resume a 'name and shame' scheme for employers found to have been in breach of the regulations governing minimum wage pay. Whilst we haven't seen much reported on this scheme so far, it is definitely something employers should keep in mind.

Action Points for employers:

  1. Keep a record

There is a requirement under the NMW Regulations to maintain sufficient records to evidence that the NMW has been paid for at least the last 3 years. It is a criminal offence not to do so. As an added incentive, there is a presumption that an employee has not been paid the NMW unless an employer can prove to the contrary.

  1. Be mindful of 'salary sacrifice'

For example, this may be where employees opt for increased pension contribution or childcare vouchers by way of deduction from their gross salary. If so, it is important that this must not take the employee's average hourly pay below the NMW. The Government has confirmed (following concerns that this denies the lowest paid the benefit of the tax breaks brought by a salary sacrifice scheme), that, whilst an employer caught paying below the NMW on this basis alone would not be subject to a penalty, they could still be 'named and shamed'.

  1. Consider your employees' 'Working Time'

This may or may not be applicable depending on your sector. The concept of 'working time' does not necessarily just mean the time spent by the employee doing his/her job. For example, if there any mandatory steps for an employee at the beginning or end of their working day, e.g. security checks or drug and alcohol tests, these processes may be included in working time. Additionally, staff working through unpaid breaks may raise issues as they are not being paid for working time.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact Emily Edwards to discuss any issues you are facing.