The Low Pay Commission (LPC), an independent body that advises the UK government on the National Minimum Wage (NMW) and National Living Wage (NLW), has recently published a policy paper outlining its updated approach following July’s general election. The new remit focuses on taking into account the cost of living, inflation, and ensuring that NMW and NLW do not fall below two-thirds of median hourly earnings when making recommendations.
Here’s what employers need to be aware of as we approach 2025:
Cost of Living and Inflation
The LPC has been tasked with factoring in both the cost of living and expected inflation up to March 2026. To do this, the commission will draw from various sources such as headline inflation rates, the Office for National Statistics (ONS) Household Cost Index, and other metrics that track living standards.
Larger Increase for 18-20 Year Old Rate
One key point from the policy paper is the expectation of a larger increase to the 18-20 year old rate compared to the 21 and over rate. The government aims to eventually abolish the 18-20 year old rate, aligning it with the full adult rate over time. Employers should anticipate this move and consider the implications for payroll and workforce planning.
National Living Wage Estimate
At present, the LPC's central estimate predicts that the NLW could rise to £12.10 per hour—a 5.8% increase—by April 2025. This is an increase from an earlier estimate of £11.89 made in March this year. However, this figure could change as the LPC continues to monitor inflation and wage growth data. Employers should keep this figure in mind when budgeting for future payroll expenses.
Submission of Recommendations
The LPC is due to submit its final recommendations to the government by the end of October 2024. Employers can expect clearer guidelines after this date and should be prepared to make adjustments accordingly.
What’s Next for Employers?
With significant wage changes on the horizon, it’s vital for businesses to stay informed and prepare for possible adjustments to their pay structures. The potential for a notable increase in the NLW, as well as the move to equalise rates for younger workers, could have a financial impact on businesses, particularly those in sectors with large numbers of minimum wage employees.
Action Steps:
Review your current wage structures: Ensure that you’re prepared to meet the likely increase in NMW/NLW rates from April 2025.
Consider the impact on younger employees: The move to align the 18-20 year old rate with the adult rate may mean higher wage bills for businesses employing younger workers.
Budget for change: Adjust your financial planning to accommodate these potential increases.
Holly Mapstone is an HR expert and specialises in helping those of you in the SME sector with all of your HR needs.
Consultancy allows Holly to be agile and to adapt her style and support to suit the needs of her clients. Building strong working relationships allows Holly to deliver improvements, while also aligning people strategy to business outcomes and promoting resilient and positive cultures.
Need Advice?
If you need a hand with any of this, or anything else when it comes to the people and practices in your business, we’d love to help. We are always happy to debate the pros/cons, dos/don’ts with you so please do talk to us if we can help in any way, we are here to support you. Just give us a call and arrange a free consultation. You can talk to Alison directly on 07967 221595 or email info@enlightenhr.com
