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National Minimum Wage Increase

On 21 November 2023, the Government announced that it had accepted the Low Pay Commission’s recommendations on minimum wage rates to apply from 1 April 2024. This is the largest ever increase to the minimum wage in cash terms.

From 1 April 2024, the national living wage will be extended from workers aged 23 and over to those aged 21 and 22.

The annual increases to the National Minimum Wage (‘NMW’) will be as follows:

  • 16-17 year old and apprentice rate: £6.40 (21.2% increase);
  • 18-20 year old rate: £8.60 (14.8% increase);
  • 21 and over: £11.44 (9.8% increase);
  • Accommodation offset: £9.99 (9.8% increase).

The onus is on the employer to ensure that NMW requirements are satisfied.

Record keeping

Employers must keep certain records in relation to the hours worked by, and the payments made to, workers to establish that their workers have received the NMW.

It will be presumed that the worker has not been paid the NMW unless the employer can prove to the contrary, so employers will need to keep records to defend any potential claims regarding a failure to pay the NMW.

In addition, to establish whether they have received the NMW, a worker and/or an enforcement officer has the right to require the employer to produce their records for inspection.  

Enforcement measures

The NMW is enforced by HMRC and the increase to the NMW will bring more employers within  HMRC’s scope to investigate compliance. Officers can carry out inspections at any time, without providing a reason, and can require employers to produce records and provide other information or access to determine entitlement to the NMW and the level of pay received by workers.

Employers must ensure compliance, as getting it wrong can be extremely costly. Indeed, failure to pay workers the NMW can result in civil and, in some circumstances, criminal penalties.

Falling foul of the NMW rules can result in hefty penalties as well as employers being publicly named and shamed for underpaying their workers. Employers can be named once for every notice of underpayment that is issued. If they are issued multiple notices of underpayment, then they may also be named multiple times. 

A worker who does not receive the NMW can also bring claims for unlawful deduction from wages.

Common pitfalls for employers to avoid

Firstly, employers need to account for the cost of compliance with uniform requirements or work-related equipment when determining whether they are paying the NMW, as any deductions or payments due from workers for uniform is expenditure in connection with the employment which reduces NMW pay.

Secondly, salary sacrifice arrangements need to be applied correctly, as such arrangements can reduce wages for the purpose of the NMW. Apart from accommodation up to the limit of the accommodation offset, no other benefits count towards the NMW. This means that a salary sacrifice arrangement that reduces pay in exchange for the provision of a benefit will breach the NMW legislation if the worker’s reduced pay falls below the relevant NMW rate.

In addition, bonuses and/or premium payments (such as allowances and overtime payments) should be excluded when calculating wages for the purposes of determining NMW compliance.

Finally, it would be advisable for employers to review their pay rates in March 2024 to ensure that increases to the rate of NMW in April do not result in their workers being underpaid once the increases take effect. They should also keep an eye on the age of their workers to ensure that their pay continues to comply with the NMW when they move into a different age band or when they complete the first year of their apprenticeship.

Please note that this is a very brief summary of the key elements concerning the national minimum wage increase and its enforcement. The contents of this article do not constitute legal advice.  If you require any further information please contact us at employment@berrysmith.com or on 02920 345 511.