Did you know that National Minimum Wage rates are due to change on 1 April 2021? In our latest blog, Reece Eccles, payroll specialist at PM+M outlines everything you need to know…
Changes to the National Minimum Wage rates will come into effect on 1 April 2021 and to help employers prepare, we have summarised all the key details below.
What are the current and upcoming rates?
A comparison between the current and future rates for each band are outlined in the table below:
|Rate from April 2020||Rate from April 2021|
|National Living Wage|
(23 and over)
|Aged 21-22 rate||£8.20||£8.36|
|Aged 18-20 rate||£6.45||£6.56|
|Aged 16-17 rate||£4.55||£4.62|
*applicable to apprentices under 19, or aged 19 and over and in the first year of apprenticeship
What does this mean for my business?
As a reflection of the ongoing economic uncertainty, the National Living Wage is set to rise by a modest 2.2% going into the new tax year, a far cry from the generous 6.2% increase seen in April 2020. There is some compensation for young workers, as eligibility for the National Living Wage has widened for the first time since its inception, with the top band now being open to those aged 23 and above (reduced from 25 and above.)
Other National Minimum Wage bands are following a similarly cautious pattern, which will no doubt serve as a mild relief to employers that are already struggling to cover wage costs during the COVID-19 pandemic. Minimum wage workers aged 16-17 will receive a 1.5% increase, those aged 18-20 will see their pay rise by 1.7%, and those aged 21-22 will be increased by 2.0%. Apprentices aged under 19, or those over 19 and in their first year of their apprenticeship, see the highest percentage rise of all categories of 3.6%.
Things for employers to keep in mind…
As we approach the new tax year, here are some reminders of the most common National Minimum Wage pitfalls that even the largest employers can unintentionally fall into:
– Employees must not enter a salary sacrifice arrangement which would bring their hourly rate below the National Minimum Wage. Common examples include cycle-to-work schemes, salary sacrifice pension schemes and childcare voucher schemes entered into prior to 4 October 2018.
– The optional £1 administration deduction that can be taken from employees when operating attachment of earnings orders can lead to an underpayment of the National Minimum Wage.
– Where employees are required to purchase a specific uniform as a condition of their employment, this can breach National Minimum Wage regulations as it is expenditure incurred in connection with their employment. This applies regardless of whether the cost of the uniform is deducted directly from the employee or if the employee purchases the uniform from a third-party themselves.
– Beneficial net deductions from employees’ wages, such as for lottery syndicates and savings schemes, can also breach National Minimum Wage regulations. This is regardless of whether the individuals have explicitly opted into such schemes.
Penalties for National Minimum Wage breaches can be costly and could also result in being publicly named and shamed by HMRC, so it certainly pays to be mindful of any potential oversights.
If PM+M provide you with outsourced payroll services, we will assist in the process by uplifting any National Minimum Wage rates automatically in the relevant period, unless we are instructed by you differently (for example, to increase employees to a higher rate).
We will also be vigilant in identifying any areas which may put you in breach of National Minimum Wage legislation and highlight these accordingly.
For further information on our payroll services, please get in touch with Julie Mason, our director of payroll, using the button below.