Keeping on top of the recent changes to minimum wage
by Karen Farrell
Karen Farrell is an associate specialising in employment law at Dentons.
Key changes to the National Minimum Wage and National Living Wage ?
Each year, the rates for the National Minimum Wage (NMW) and National Living Wage (NLW) change on 1 April and, since their introduction, have always been increased. Despite the challenges arising from the Covid-19 pandemic, this year is no different. From 1 April 2021, in addition to an annual increase to both the NMW and NLW, changes to eligibility for the NLW and employer record-keeping requirements were also introduced.
What are the changes?
National Living Wage
The NLW is the minimum hourly rate of pay for workers aged 25 and over. From 1 April 2021, this increased by 2.2%, from £8.72 to £8.91 per hour.
Importantly, following the welcome announcement from the Chancellor in his spending review in November 2020, from 1 April 2021 the NLW was extended to workers aged 23 and 24. They are now eligible to receive the new NLW rate of pay. This represents a significant uplift of 8.7% from the NMW rate of £8.20 per hour to which they were previously entitled.
National Minimum Wage
The NMW increased for other age groups to the following rates from 1 April 2021:
- 21-22 year olds will receive £8.36 per hour (up from £8.20)
- 18-20 year olds will receive £6.56 per hour (up from £6.45)
- 16-17 year olds will receive £4.62 per hour (up from £4.55)
- The Apprentice rate will be £4.30 per hour (up from £4.15)
- Accommodation offset will be £8.36 per day (up from £8.20)
What do employers need to do?
As the changes are now in force, employers should ensure that they have conducted a review of their payroll to confirm that the changes have been applied where appropriate.
In particular, employers should identify any workers who may have moved between NMW bands, as well as those who are now eligible for the NLW, to help safeguard against any potential employee claims or government investigation.
What are the potential risks?
The UK government has recently resumed its “name and shame” approach which it introduced in 2018, where some of the UK’s largest household names have previously been publicly highlighted for failing to pay the NMW.
In addition to negative publicity, there are financial implications for those employers who pay less than the NMW – they must pay wage arrears at the current NMW rate to the workers affected and may also be subject to financial penalties of up to 200% of arrears (capped at £20,000 per worker).
Employers’ record-keeping obligations also changed from 1 April 2021. While, previously, employers were required to keep records to verify their compliance with the NMW rates for a three-year period, this has now been extended to six years. The change applies retrospectively to records made immediately prior to 1 April 2021.
Where appropriate, employers should ensure that any privacy notices are updated to reflect this change.
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