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New National Minimum Wage and National Living Wage rates

New National Minimum Wage and National Living Wage rate

The government recently announced substantial increases to minimum hourly pay from April 2020 – what do employers need to consider?

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Director, KPMG Law

KPMG in the UK

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The government has announced that, from April 2020, the minimum hourly rates of pay will be as follows:

Age

Minimum rate from April 2020

Current minimum rate

25 and over

£8.72

£8.21

21 to 24

£8.20

£7.70

18 to 20

£6.45

£6.15

Under 18

£4.55

£4.35

Apprentice

£4.15

£3.90

These increases are the most substantial to the minimum rates of pay since the National Living Wage (NLW) was introduced in 2016.

At that time, the minimum hourly rate for those aged 25 and above was £7.20, so in 4 years, the rate has increased by over a fifth.

Enforcement of the minimum wage

Despite paying a basic rate in excess of the applicable minimum wage, employers can fall foul of the complex  NMW regulations, often due to well-intentioned, or innocuous practises, such as: providing benefits via salary sacrifice; uniform policies, training requirements or poor controls on working hours.

Over the last few years, we have seen HMRC take an increasingly strict approach to the enforcement of the minimum wage and inadvertent breaches can leave employers facing substantial financial penalties.

Current increases

Some employers are confident they are compliant with NMW requirements as they pay workers a basic rate in excess of the minimum wage. This creates a buffer to cover reductions in the hourly rate of pay resulting from:

  • Employment practises; or
  • Deductions processed through payroll.

However, with the future increases in minimum pay set out above, any such excess will be reduced and could be extinguished entirely.

Therefore, even the most well intentioned employers could find themselves paying workers less than the applicable minimum wage.

What should employers do?

In advance of the introduction of the new minimum rates of pay, employers should:

  • Review their contracts to ensure they meet the work types prescribed by the NMW regulations, and they process pay accordingly;
  • Review their pay codes (including deductions) to check pay rates are compliant;
  • Review their employment practises and policies and consider whether they might create any issues with minimum wage compliance after April 2020.

The law relating to the NLW and NMW is complicated.

At KPMG our employment team has substantial experience in advising on this area of law and in advising employers on:

  • Reviewing and assessing their NMW compliance;
  • Preparing for and responding to queries during an HMRC investigation; and
  • If necessary, preparing remediation calculations.

If you would like to talk through the implications of the minimum wage changes for compliance – or what they mean for your organisation more generally, please get in touch with Donna Sharp, Director and Solicitor, Employment Legal Services at KPMG in the UK, your usual KPMG contact, or email employersclub@kpmg.co.uk.

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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