From April this year, employers across the UK will need to review their hourly rates of pay and make adjustments where necessary to reflect the latest increase to the National Minimum Wage alongside changes to the National Living Wage.
The National Living Wage, which is the minimum companies can legally pay any employee aged 23 or above who is not in an apprenticeship, will rise from £10.42 per hour to £11.44 per hour. The equivalent increase for employees aged 21 to 22 will bring these age groups in line with their older peers, meaning all staff of 21 and above will be entitled to the National Living Wage.
An anticipated 3 million people will receive a direct increase in their incomes due to the reforms, with the Treasury estimating that employees working in full-time roles will earn £1,800 more per year – with a similar cost impact on the budgets of their employers.
Understanding the Changes to National Living and Minimum Wages in the 2024 Tax Year
There are two enforceable minimum pay rates that apply to all businesses in the UK:
The National Minimum Wage: a universal minimum rate that almost every employed person is entitled to.
The National Living Wage: a higher minimum hourly pay rate that applies from an age threshold upward.
The National Minimum Wage is the lowest amount employers are allowed to pay, although they have reduced minimum hourly rates for apprentices. There are no exemptions or allowances for small businesses or start-ups, and the minimum hourly rates are applicable nationwide and in every sector.
In April 2021, the government reformed the standards to apply the National Living Wage to all staff aged 23 and above - previously, only employees aged 25 and over were eligible. The latest round of changes shows that the age bracket has been extended further to all staff aged 21 and over, with the caveat applied to apprenticeships.
Updated National Minimum and National Living Wage Hourly Rates
Employers assessing their current rates of pay should apply increases where applicable across their workforces, with the new minimum rates mandatory from 1st April of this year. The minimum hourly rates are based on recommendations provided by the Low Pay Commission (LPC), an independent advisory body.
Apprentice rates and minimum wages for under 18s increase from £5.28 to £6.40.
The National Minimum Wage for employees aged 18 to 20 will rise from £7.49 to £8.60.
All other employees of 21 and over receive an increase to £11.44 – increasing from £10.18 for 21 to 22-year-olds and £10.42 for those over 23.
Any business found to pay below minimum wage may be subject to enforcement action by HMRC. Penalties have increased from 100% of the arrears to 200%, meaning a company would be fined double the difference between the actual pay rate and the legal minimum.
Impacts of Rising Minimum Wages on UK Businesses
It is no secret that rising trading costs have profoundly impacted the growth opportunities and profitability of millions of companies, particularly smaller businesses with finite budgets or in labour-dependent industries.
The impacts may feel more stark following additional reforms to National Insurance Contributions. While employees will see a cut of 2% against most categories of NICs, the employer’s rate is unchanged – which means a higher NIC bill alongside increased payroll expenditure.
However, the overall impact may be positive, where employees on the lowest pay rates will receive an increase that negates the drop in purchasing power that has eroded the real-world value of their salaries in an inflationary economy. Likewise, lower deductions mean higher take-home pay, which may prove a much-needed morale boost.
In the meantime, it is key that all businesses verify their pay rates and communicate upcoming changes with their staff. Should you require any assistance with forecasting, budget revisions, or updating your payroll processes in light of the changes discussed here, please get in touch with the SAS Accounting team at any time.
