Out-Law / Your Daily Need-To-Know

More salaried employees likely to fall within UK National Minimum Wage

Out-Law News | 09 Jan 2020 | 11:03 am | 2 min. read

UK National Minimum Wage (NMW) legislation will increasingly apply to salaried employees, as well as those paid hourly, when proposed increases to the rates take effect later this year, an expert has warned.

The 'national living wage' for workers aged over 25 is due to increase from £8.21 to £8.72 per hour from 1 April 2020 – an increase of 6.2%. The NMW for workers in other age groups will also increase: from £7.70 to £8.20 for 21-24 year olds; from £6.15 to £6.45 for 18-20 year olds; from £4.35 to £4.55 for workers under 18; and from £3.90 to £4.15 for apprentices.

Employment law expert Jon Fisher of Pinsent Masons, the law firm behind Out-Law, said that the complexity of the rules meant that employers could be in breach even where a particular employee's salary was above the new minimum.

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Jon Fisher

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The higher rates increasingly bring salaried employees close to the minimum.

"This significant increase will mean that NMW legislation becomes relevant to far more employees," he said. "This won't be confined to hourly paid employees, as the higher rates increasingly bring salaried employees close to the minimum - once the increase takes effect, the minimum annual salary for a worker aged over 25 on a 40-hour week will be £18,188."

"Even where an employee's headline rate is more than the new minimum, employers will need to review the position carefully due to the complexity of the NMW calculation. This is particularly relevant where employers operate salary sacrifice schemes or employees do unpaid working time or incur expenditure in connection with their employment, such as by buying clothing to comply with dress code requirements," he said.

The new rates follow the recommendations of the independent Low Pay Commission, which advises the government about the NMW rate. The government has set a target of increasing the national living wage to reach two thirds of median earnings by 2024 provided that economic conditions allow, or £10.50 based on current forecasts.

The government has also announced that it will expand the national living wage bracket to cover workers aged 23 and over from April 2021, and those aged 21 and over within five years. It will publish more details of its plans in the spring.

The Resolution Foundation, a think tank which makes policy recommendations focused on those on low and middle incomes, warned that tougher penalties for non-compliance were needed if increasing the NMW was to be successful. In a new report, the foundation said that non-compliance had increased since the government introduced its higher national living wage in 2016, and estimated that HM Revenue and Customs (HMRC) had detected only 13% of cases of underpayment in 2017-18.

Employers can be fined up to 200% of arrears for NMW breaches, and may face criminal prosecution in some circumstances. However, the average penalty imposed by HMRC in 2017-18 was only 90% of arrears owed, while only 14 people have been criminally prosecuted for minimum wage underpayment in the last 20 years, according to the Resolution Foundation.

A previous government scheme 'naming and shaming' employers in breach of the regulations has been suspended pending a review, following concerns that employers were being named for technical breaches of the rules which did not economically disadvantage employees.