Living wage to reach £10.50 an hour by 2024

The Chancellor of the Exchequer Sajid Javid has recently announced that the National Living Wage (NLW), currently £8.21 an hour and the highest paid minimum wage rate, is to increase to £10.50 within the next five years. This will equate to a 27% increase in the hourly rate of Living Wage staff.

Javid also announced that the age threshold for those who qualify for the NLW would be lowered to 23 in 2021 and 21 by 2024, effectively reverting the minimum wage structure to how it was before the introduction of the NLW by re-applying the highest minimum wage to those aged 21 and over.

From an employer’s perspective, these proposed changes could stand to have a considerable impact on business costs, especially for those who pay staff in line with the national minimum and typically employ a large number of staff below the age of 25.

At the same time, organisations who purposely offer an hourly rate above the statutory minimum, as part of an employee benefits package, will also be affected and may be faced with the prospect of amending their pay practices accordingly in order to maintain a competitive advantage.

Employers who are concerned about paying higher salaries may consider offsetting the cost by reducing the number of staff on their payroll. Whilst some may fear that a drop in manpower will have a detrimental impact on productivity, employers could account for this by investing in automation that helps streamline business activities and allows them to operate effectively with fewer workers.

The good news is that employers will have a significant amount of time to prepare for this change in minimum wage law and ensure provisions are in place to continue to pay staff the correct rate. It is also worth considering that minimum rates are reviewed and generally increased each year, meaning minimum wage employers should be well versed in adapting their business practices accordingly by now.

Another potential positive is that the removal of the separate 21-24 year old age band for minimum wage purposes may make the system easier for businesses 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.

Ultimately, this is another case of ‘wait and see’ as employers are encouraged to have patience with a government that is currently focusing much of its attention on Brexit negotiations. It is also worth noting that these specific increases are dependent on the Conservative party winning the upcoming general election. Meanwhile, should Labour be victorious they themselves plan to increase the NMW to £10 an hour and make this available to everyone over 16.

With this in mind, employers may want to liaise with payroll and HR departments to ensure the mechanisms for increasing hourly rates remain fit for purpose, as it is clear that significant changes are likely to occur in the near future.

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