Alex Watson: Will the national minimum wage increase support staff financial wellbeing?

For low-paid workers, the repercussions of the Covid-19 (Coronavirus) pandemic have exacerbated income insecurity, and issues of in-work poverty are on the increase.

Young people are more likely to have been employed in sectors that were impacted hardest during the pandemic and more likely to have been furloughed, so assuming they did not take on better paid alternative work, will likely have seen their overall annual incomes drop in the past two years.

While welcome for employees, on the face of it, the increase in national minimum wage (NMW) rates from April 2022 will probably only go part of the way to redressing the shortfalls in pay many have experienced since March 2020.

In practice, labour shortages have contributed to wage inflation, meaning many employers have had to pay over the minimum wage to attract and retain staff. But the 5% inflation rates seen in the wider economy that have directly affected the cost of living means these gains have not necessarily contributed to greater financial wellbeing overall.

For 16 to 20 year-olds, who are on minimum wage and whose NMW increases from April only amount to 4.1%, they are likely to feel poorer in real terms if inflation remains at or above levels seen at the end of 2021. 21-22 year olds and those over 25, who will receive a 9.8% increase in the NMW and 6.6 % increase in the national living wage, respectively, may feel slightly better off.

Employers will also need to do their bit to ensure the full benefit of these increases are passed on to workers. While most employers have no intention of paying workers below the legal rates, the highly technical nature of the minimum wage legislation has caused some employers to inadvertently fall foul of the rules and receive fines.

Many businesses have struggled throughout the pandemic and NMW increases are an additional burden, but failing to comply with the new rates will prove far more costly.

Alex Watson is an employment partner at Fieldfisher Manchester