National Living Wage

Handling Changes to The National Living Wage: What Every Employer Needs to Know 

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What is the National Minimum Wage? 

The National Minimum Wage in the UK is the minimum pay per hour almost all workers are entitled to within the UK.  The pay rates are calculated annually by the Government, with recommendations from the Low Pay Commission, and are in place to increase the income of the lowest paid workers. 

How is this Different to the National Living Wage? 

The National Living Wage is higher than the National Minimum Wage and it is currently available to lower-paid workers aged 23 and over. At present the National Living Wage hourly rate is £10.42. 

Each year the Government sets the threshold for these wages, and on 1^st April 2024, the UK National Living Wage increased by almost 10%, with an increase of over £1.00 per hour for the first time ever, taking it to £11.44 per hour.   

In addition, the age threshold was dropped from 23 to 21 – meaning more workers are now eligible. The Department for Business and Trade (DBT) estimates that about 2.7 million people will be impacted. 

This is undoubtedly great news for lower-paid workers across the country – but what does it mean for their employers? 

What are the Consequences of Non-Compliance? 

No matter how small your organisation is, you must comply with National Living Wage rates. Non-compliance with minimum wage regulations is illegal, and can lead to penalties such as backpay, fines up to £20,000 per worker, and potential criminal proceedings.    

What Else do I Need to Consider? 

As well as the hourly rate increases, employers need to consider other factors, such as Holiday Pay (WTD), Employers National Insurance Contributions (ENIC) and Pension Contributions. 

You should also consider any Apprentices that you may have, as they are covered by National Living Wage regulations, and their rates will vary according to their age. 

When all these factors are considered, the overall cost of employing permanent staff rose by approximately 10% from April 2024, marking the largest single increase in 25 years. 

Whilst no one is questioning the need for financial protection for low-paid workers, these cost increases come at a time when many businesses are already struggling with rising energy prices, increased interest rates and reduced demand for products and services.  Absorbing these costs will be challenging for many.   

So, what can you do to help prepare for the National Living Wage rates increase? 

How Can I Prepare for the Changes? 

It is vital that workers’ pay rates remain in line with the new National Minimum Wage or National Living Wage, and employees are communicated to about any changes to their employment contracts.  

In advance of any changes, you should start planning how it may impact your business. It is a good idea to complete a full financial audit of your employees to identify all those who will be affected by the new rates change.