Aaron & Partners Solicitors answer your questions about the National Minimum Wage and National Living Wage increase from 1st April 2021
The Government will increase National Living Wage (‘NLW’) and National Minimum Wage (‘NMW’) from 1 April 2021 in line with the recommendations made by the Low Pay Commission. Significantly, the age threshold for receiving NLW has been lowered to 23 for the first time. We address the key points here.
Who is entitled to the minimum wage?
NMW and NLW set out the minimum rate a 'worker' is entitled to receive for each hour worked.
Whether a worker receives NMW or NLW depends on which age bracket they fall into and whether they are an apprentice. The NMW currently applies to under 25s and the NLW currently applies to workers aged 25 and over. It is a legal requirement for employers to pay workers the minimum amount on average for the hours worked.
The minimum rates listed are before tax, national insurance and pension contributions have been deducted.
So, what are the new NMW rates?
The NMW rates will increase as follows:
Old Hourly Rates from 1 April 2020
New Hourly Rates from 1 April 2021
21 – 22 year old
18 – 20 year old
16 – 17 year old
What is the new NLW?
The NLW will increase by 2.2 % from £8.72 to £8.91 and will now be available to workers aged 23 and above. This will be a welcome change for young workers who have faced a difficult year. Young people have been the most economically affected due to the pandemic, with lower average earnings and higher unemployment rates. The ONS recently reported that 18 to 24-year-olds have seen the greatest decrease in payrolled employees since February – more than any other age group. The lowered threshold would offer greater protection to young workers seeking employment as the group is identified as being more exposed to employment risks related to pay.
Why has the age threshold lowered?
Businesses may question the new changes considering they are operating under great uncertainty and many are struggling financially due to disruptions related to the pandemic. Added to this, the changes could mean businesses will have to make further difficult decisions as they no longer can afford to pay the new rates.
In their press announcement, the Low Pay Commission addressed these concerns stating that “recommending the minimum wage in the midst of an economic crisis coupled with a pandemic [was] a formidable task”. The commission strook a balance between ensuring businesses are not pushed into insolvency against recognising the contributions of low-paid workers by ensuring they receive enough to keep them above the poverty line.
What happens if an employer is non-compliant?
HMRC has a wide range of enforcement powers including mandatory recovery of underpayments in the employment and civil courts as well as criminal prosecution. Getting it wrong can be costly. Fines increase over time in line with the rise in NMW and NLW. The fines are currently subject to the maximum cap of £20,000 per each affected worker however this amount could be considerably higher for larger companies with historic issues of underpayment.
The Government announced in February last year of their intention to reinstate the “naming and shaming” scheme where they publish details of employers that have been issued with a notice of underpayment by HMRC. The aim of the scheme is to incentivise employers to accurately calculate and pay the minimum wage and to enable workers to make an informed choice when choosing who to work with. Whilst there doesn’t appear to have been much output over the last year, the scheme acts as an extra incentive for employers to remain compliant as it could affect their ability to attract staff.
It is worth noting that NMW/NLW claims usually arise not because the employer is not paying the correct amount per hour but because the worker ends up working more hours than they get paid - meaning their average pay falls below the minimum rate. Certain sectors such as retail and manufacturing are more likely to fall foul of this, as workers tend to work extra hours which are not always accounted for in their pay.
What action should employers take considering the new changes?
- Undertake a detailed audit of pay and working practices and, if necessary, amend in line with the new minimum wage rates.
- Update policies to ensure workers are receiving the minimum wage on average when calculating their overall working time. Calculating working time can be a tricky area as it is not as simple as calculating the time a worker spends doing their job. Training, security checks before or after the job, waiting time to collect goods or traveling in connection with work (such as to customer meetings) all counts as working time. Workers ‘on-standby’ or working in unpaid breaks can bring up further complications which employers need to carefully consider.
Keep and maintain records documenting the hours worked by and payments made to, workers. A failure to do so is a criminal offence. These records should be kept for at least 3 years and be made available to HMRC enforcement officers and to any worker who makes a request. Keeping detailed and accurate records wins claims. For unless an employer can prove the contrary, it will be presumed that the worker has not been paid at least the minimum rate.
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