An apprentice at understanding National Minimum Wage changes..

The National Minimum Wage (NMW) has garnered a lot of attention recently but perhaps one area that has gone a little under the radar are the increases from 1 April. There are, however, some options for change that employers could consider in order to adapt to the new Post Covid-19 economy and work dynamics.

We set out our thoughts and updates below.

New NMW rates

From 1 April, the NMW rates are as follows:

 

Rate from April 2020

Rate from April 2021

% increase

National Living Wage

£8.72

£8.91

2.2%

 

21-22 (21-24 up to 31 March 2021) Year Old Rate

£8.20

£8.36

2.0%

 

18-20 Year Old Rate

£6.45

£6.56

1.7%

 

16-17 Year Old Rate

£4.55

£4.62

1.5%

 

Apprentice Rate

£4.15

£4.30

3.6%

 

Accommodation Offset

£8.20

£8.36

2.0%

 

This represents an increase at each rate between 1.5% to 3.6% for most workers.  However the key change to be aware of is the NMW rate for those aged 23 and 24.  From 1 April, this increases to £8.91 per hour, an increase of over 8.5% on the current rate for these workers.

Additionally, employers will have to factor in the following:

  • Additional employer pension contributions due to increased pensionable pay;
  • Higher employer NIC and Apprenticeship Levy costs due to an increased pay bill
  • The impact this has on pay differentials across grades, locations and job roles - how can progression and strong performers be encouraged if pay differentials reduce?

Apprenticeships and the NMW…

One aspect employers can consider to off-set the rising NMW costs is employing apprentices.  Now, although the apprenticeship NMW rate is lower than that for 23 year olds, you could pay slightly higher than the apprenticeship NMW rate to recruit the best talent and ensure you are an employer that takes reward seriously.

By utilising apprenticeships it can:

  • Enable better compliance with NMW regulations e.g. paying 20 year old apprentice an hourly rate higher than the NMW being £4.30 per hour.
  • Help reduce costs as employers do not pay Class 1 NIC (secondary) on workers’ pay if they are aged 25 or under and on a qualifying apprenticeship.
  • Help provide the employer with funding.  For each new apprentice employed in England a payment of £3,000 will be made to the employer between 1 April 2021 - 30 September 2021. Further employer funding may also be available depending on age and type of apprenticeship.
  • Reduce potential training cost as the Apprenticeship Levy can be used to pay for the training, or the Government’s co-investment funding, whereby the Government can fund up to 95% of the costs.
  • Help Instil a culture of growth, development and innovation to help transform improve skills and the businesses.

Next steps

NMW is not all about HMRC investigations. It can be about reward planning, organisational design and considering the broader ways in which compliance can be achieved, costs managed and overall reward maximised.

Please do get in touch if you would like to discuss any elements related to reward strategy, apprenticeships or NMW.

Get in touch