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Expert warns employers to watch out for ‘complex’ minimum wage rules as hourly rate increases

Out-Law News | 01 Apr 2019 | 3:01 pm | 1 min. read

The UK government has confirmed increases to the national living and national minimum wages, which take effect on 1 April 2019.

The national living wage (NLW) for over-25 year olds is rising to £8.21 an hour from £7.83, up 4.9%. The national minimum wage (NMW) for younger workers is also rising, with 21-24-year olds set to receive £7.70 per hour, up from £7.38 per hour last year.

Employment law expert Jon Fisher of Pinsent Masons, the law firm behind Out-Law.com, said businesses should take note of the changes.

"Employers need to bear in mind that this isn’t simply a case of ensuring that the basic hourly rate exceeds the new minimum. The rules for calculating NMW pay are complex, and the higher minimum rate means that employers may now be inadvertently in breach once issues such as unpaid working time and deductions from pay are taken into account," Fisher said.

The increase to the NLW is the highest since the new scale was introduced in 2015. The government said full-time workers on the NLW would now be £2,750 better off than they were in 2015, and £690 a year better off than they were last year.

In total, 2.1 million people will receive a wage increase as a result of the changes and the government said those in the retail and hospitality sectors would benefit the most.

The government added that it was committed to ensuring the NLW reaches 60% of median earnings by 2020, subject to economic growth. The latest NLW rate of £8.21 represents 59.8% of median earnings.

Pinsent Masons' Fisher said employers should also take note of the fact that they will also have to increase pension contributions in April.

 "One particular issue to bear in mind is the increase to auto-enrolment pension contributions which also comes into force on 6 April - the total minimum contribution will increase to 8%. This could pose a NMW problem where employees contribute via salary sacrifice," Fisher said.

"Currently, for NMW purposes compliance is assessed by reference to post-sacrifice pay. For employers who operate salary sacrifice, the increase to both the minimum pension contribution and the minimum rate of pay is a double whammy - they will need to ensure that workers over 24 earn at least £8.21 per hour after the salary sacrifice element has been deducted," Fisher said.

Last year's annual report by the Low Pay Commission found that employers had tended to adapt to NLW increases by raising prices or accepting lower profits, rather than by reducing staff count or increasing productivity.

A consultation on possible changes to NMW rules for salaried workers and the operation of salary sacrifice schemes closed on 1 March 2019. The consultation asked if there were areas where they felt NMW rules penalised employers without generating benefit or protection for workers.

A response to the consultation is awaited.