Be ready for the changes announced in the budget last week. Here we highlight the changes to both the National Living Wage and the National Minimum Wage, which will come into force from next month (1st April 2021).
Currently the National Living Wage rate is £8.72 and applies to workers aged over 25 years. This will increase by 2.2% to £8.91 and most importantly the qualifying age will reduce to 23 years, so more of your employees/workers will, potentially, be eligible for this new higher rate of pay from April 2021.
The current National Minimum Wage applies to employees/workers aged 16-24 but this will change to employees/workers aged 16-22 years as the reduction in age to the NLW is applied.
The applicable NMW depends on age:
The National Minimum Wage Rates
Rate from 1 April 2020 | Rate from 1 April 2021 | Increase | |
21-22 Year Old Rate | £8.20 | £8.36 | 2.0% |
18-20 Year Old Rate | £6.45 | £6.56 | 1.7% |
16-17 Year Old Rate | £4.55 | £4.62 | 1.5% |
Apprentice Rate | £4.15 | £4.30 | 3.6% |
Accommodation Offset | £8.20 | £8.36 | 2.0% |
Does this affect Furlough payments?
Furlough calculations will continue to be worked out on the old rate (what you have been paying in 2020) but any holiday top up or hours worked under flexible furlough will have to be paid at the new rate.
What do you need to do?
- Audit your employees/workers to ensure that anyone who will now be eligible (age 23+) for the National Living Wage rate gets the appropriate increase (to £8.91) from April 2021.
- Ensure that hourly rates for all employees/workers in the 16-22 age group increase to comply with the new rates from April 2021.
- Ensure that your payroll systems pick up on birthdates which will mean an increase in status and/or rate during the year and apply the new rate from that date.
- Maintain accurate records, sufficient to prove that you have paid the NMW or NLW as applicable over the previous 3 years.
- Be aware of the impact of ‘salary sacrifice’ schemes. If the impact is to take employees’ pay below the NMW/NLW the Government may add you to its ‘name and shame’ list!
- Think about what is, and what isn’t, ‘working time’. Some things which are mandatory for employees/workers, for example security checks at the beginning/end of a shift, travel to/from a client site, may be working time and, if accounted for, might take them below the NMW/NLW. Also be wary of employees/workers working through unpaid breaks as again that may take their average hourly rate below NMW/NLW.
- Write to your employees/workers who currently earn NLW or NMW and confirm the rate increase, effective 1st April 2021. We have drafted a template letter for you to use and you can access this by signing up for our Advice Line services.
So what if you don’t comply with NLW/NMW?
- It’s a criminal offence not to keep records and there is a presumption that the employee/worker hasn’t received the NMW/NLW unless you can prove they have been paid correctly.
- If HMRC finds that employees/workers have been underpaid, they can issue a notice of underpayment requiring the employer to pay the arrears to the worker and pay a financial penalty to the Secretary of State. The penalty is a minimum of £100 and a maximum of £20,000 per employee/worker (not in total).
- The Government is resuming its ‘name and shame’ list of employers who have been found to pay below the NMW/NLW. Although this doesn’t in itself mean a penalty, the reputational damage, particularly in the local/social media is not to be ignored.
- Employers not paying the NLW/NMW may face individual claims from employees/workers through the Employment Tribunals.
- In very serious cases, for example where an employer produces false records or refuses to cooperate with an investigation, the employer can face criminal prosecution and unlimited fines.
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Please note, this briefing is accurate at the time of writing and intended, it is not intended to replace advice so please do call us if you have any queries.