Whilst some employers may have been surprised by the Government’s announcement to increase the National Living Wage, it is important that your client understands that it will not be taking place immediately. A phased approach will be used to implement higher rates over the course of the next 5 years. This was the pledge made by Chancellor Sajid Javid at the recent Conservative party conference.
In his statement, Javid promised that the NLW, which is the minimum hourly rate currently payable to workers aged 25 and over, will rise from its current hourly rate of £8.21 to £10.50. This will equate to a 27% increase in the hourly rate of those receiving NLW.
Whilst increases to the NLW are not particularly big news considering they normally happen every year, it was the second part of the Chancellor’s announcement that your client is less likely to have been prepared for. Thousands more younger workers will be entitled to receive the higher rate; it will apply to all those aged 21 and over. Again this will be phased in, with a drop from 25 to 23 in 2021 and a further drop to 21 from 2024.
From your client’s perspective, the good news is that they will have a significant amount of time to prepare for this change in minimum wage law and ensure provisions are in place to ensure staff continue to be paid the correct rate.
Another positive is that the removal of the separate 21-24 year old age band may make the system easier for your client to understand. After all, recent statistics released by the TUC suggest employers struggle to comply with the minimum wage rights of those aged 25 and under. Therefore, this should reduce the likelihood of pay discrepancies from occurring as all staff aged 21 and over will be entitled to receive the same minimum rate.
However, the fact is that your client will still face the prospect of paying staff more money, which is likely to have an impact their budget and operational costs. If your client is concerned about the prospect of paying higher salaries, they may consider offsetting this cost by reducing outgoings in other areas which could include the size of the workforce, the location of the work or other supplier costs, for example.
In addition, if your client already pays staff above the hourly NLW as part of a competitive employee benefits package then they may need to increase this accordingly in order to retain their competitiveness.
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