From 1 April 2021 thousands of low-paid workers will receive a pay rise of almost 9%, as the eligibility for the national living wage is widened to include 23- and 24-year-olds.
Announced by the chancellor in the Spending Review last November, the national living wage (NLW) rate will increase 2.2% from £8.72 to £8.91 next month; an annual pay rise of £345 for a full-time employee on this rate. The NLW is currently only applied to those aged 25 and over.
However, many workers will see their pay leap by 8.7% next month as they will fall within the new age threshold from 1 April. A 23- or 24-year-old paid the current full national minimum wage rate of £8.20 an hour will need to be paid at least the NLW rate of £8.91 an hour.
The change was welcomed by many when it was announced last year. Paul Holcroft, managing director at HR consultancy Croner, said: “The impact of this is that those aged between 23 and 25 currently on the minimum wage rate for 21 to 24 year-olds will see a pay rise of nearly 9%, which employers will need to facilitate. This also suggests that the government are to continue with their plan of providing the national living wage to everyone aged 21 and over within the next few years.”
Employers will also need to ensure they take note of the national minimum wage changes for other age groups, the new apprentice rate, and the new accommodation offset. These were recommended by the Low Pay Commission.
Chancellor Rishi Sunak said: “Taken together, these minimum wage increases will likely benefit around two million people. A full-time worker on the national living wage will see their annual earnings increase by £345 next year. Compared to 2016, when the [NLW] policy was first introduced, that’s a pay rise of over £4,000.”
Between 2016 and 2018, national wage underpayment by UK employers totalled £6.7m. The government recently named 139 companies that breached the rules, including household names such as Tesco, Pizza Hut and Superdrug.
The Department for Business, Energy and Industrial Strategy has published a list of the main causes of minimum wage underpayment to help employers avoid common pitfalls:
- Making wage deductions or taking payments from workers, for items or expenses that are connected with the job.
- Making wage deductions or taking payments from workers for the employer’s own use or benefit where the employer is free to use that money in any way they wish.
- Failure to pay for any additional time added on to a worker’s shift, for example team handovers between shifts or time spent passing through security checks on entry and exit.
- Failure to pay a worker for any time during their shift when they are at the workplace and required to be available for work, even if no work is being provided at that time.
- Failure to pay a worker for travelling time.
- Failure to pay a worker for time spent training.
- Failure to pay sufficient money for time worked during a sleep-in shift.
- Incorrectly applying the minimum wage accommodation offset when an employer provides living accommodation to a worker.
- Paying the minimum wage apprentice rate when the worker isn’t a genuine apprentice.
- Paying the minimum wage apprentice rate before a worker starts their apprenticeship or after it ends.
- Continuing to pay the minimum wage apprentice rate to apprentices who are aged 19 years or over when they have completed the first year of their apprenticeship.
- Failure to pay an apprentice for the time they have spent training or studying as part of their apprenticeship.
- Failure to apply the annual increase to minimum wage rates that come into effect on 1 April.
- Failure to apply the correct minimum wage rate when workers move from one age band to another at ages 18, 21 and, with effect from 1 April 2021, 23 years old.
- Including an element of pay that does not count towards a worker’s minimum wage pay, for example an extra premium for overtime or tips from customers.
- Failure to pay the minimum wage to workers who are entitled to it, for example under some work experience, intern and work trial arrangements.
- Excess hours worked by salaried-hours workers, beyond their basic set hours, causing underpayment of minimum wage typically in the last pay reference period.
- Failure to distinguish correctly between different types of worker (salaried, time, output and unmeasured).