• Date

    24 Nov 2023
  • Category

    Employer Solutions

National Minimum Wage - the cost for employers

The recent announcement of the National Minimum Wage (NMW) rates to apply from April 2024 confirmed the highest rate (National Living Wage) is to apply to all workers aged 21 and over - it was previously aged 23 and over. For the second year in a row, the increase to the National Living Wage is close to 10% and higher still for 18-20 year olds.

Whilst this will undoubtedly be welcome news for employees, many employers will be looking at how these new rates will impact on their business. 

The Rates

Age Category

New Rate from April 2024 (£)

Current Rate to March 2024 (£)

Percentage increase

21+ Year Old

11.44

10.42

9.8%

18-20 Year Old

8.60

7.49

14.8%

16-17 Year Old

6.40

5.28

21.2%

Apprentice Rate

6.40

5.28

21.2%

 

What these new rates mean for employers and employees

Along with the published increase in NMW rates, it is also expected that the minimum pension contributions under the Automatic Enrolment regulations will be revised from 2025.

The proposal to reduce the age at which employers are obliged to enrol workers into a workplace pension from 22 to 18 and to abolish the lower earnings limit received Royal Assent in September but clarity on when these proposals will become mandatory is still awaited.

Currently minimum contributions may be calculated based on earnings over £520 per month rather than from the first £1 of earnings. Removing the lower earnings limit will increase the minimum pension contributions for both employees and employers.

The example below shows the employee net pay position and the additional employer costs for an employee working 40 hours per week with a standard personal allowance of £12,570 and minimum relief at source pension contributions on all earnings. These calculations also consider the reduction in employee National Insurance Contributions (NICs) from 12% to 10%.

National Living Wage

Employer Wage Cost (£)

Employee Net Pay Position – non-Scottish taxpayers (£)

Employee Net Pay Position -Scottish taxpayers

(£)

Employer Pension cost (3% of banded earnings)

Employer NI Costs

Total Cost to Employer

Percentage increase to employer

21+ Year old

457.60

374.62

375.44

13.73

39.00

510.33

11.17

18-20 Year Old*

344.00

299.64

300.26

10.32

0

354.32

18.26

* No employer NICs under age 21 up to NI UEL

The NMW is the minimum that employers can pay employees, but it is important to realise that NMW is not just an hourly rate of pay but is determined by a calculation. Employers should be aware of arrangements that may impact on this calculation. This includes deductions an employer may make which are for the employer’s own use and benefit and are not a liability owed by the worker and paid on their behalf to a third party, salary sacrifice arrangements and any expenses an employee is obliged to incur in the performance of their duties. This might include the requirement to wear a particular item/colour of clothing or pay for mandatory checks such as the Disclosure and Barring Service (DBS) checks.

 

Cost of failure

Should a failure to pay NMW be identified at a later date, any corrective payments will be calculated based on the NMW rates in place at the time of the corrective payment. April’s increase could therefore find historical errors becoming even more expensive for employers to correct.

 

We are here to help

Our Employment Tax team can help businesses ensure they are fully compliant with National Minimum Wage regulations. 

If you have any questions in relation to the National Minimum Wage requirements or the upcoming increases, please get in touch with a member of our specialist team or your usual Azets advisor.

About the author

Rohit Ghai Photo

Rohit Ghai

Assistant Manager Southampton
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