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What is the new National Minimum Wage, what will it mean for your business and how do you comply with the new legislation? We’ll tell you everything you need to know!

In November 2023, the Government announced the largest ever increase in the National Living Wage.

From 1 April 2024 the National Living Wage will increase by:

The National Minimum Wage will increase by:

What’s the difference between the National Living Wage and National Minimum Wage?

The National Minimum Wage is the minimum amount of pay per hour that all employees are entitled to. The National Living Wage is higher and is the top age-related rate of National Minimum Wage.

Even if your business is small, you must still pay the correct amount of minimum wage for the age of your employees.

What do the changes mean for my business?

While the increase will be welcomed by millions of employees, with businesses having to tighten their belts and facing the challenge of balancing cash flow, we could see more of them deciding to close their doors.

Managing the increased employment costs that the new legislation brings will mean that employers need to be prepared. Your responsibilities under the new legislation can be quite complex. It’s not just about making sure you pay your employees the correct amount of minimum wage, there are other rules that you need to comply with to avoid penalties from HMRC.

HMRC can pursue underpayments for up to six years covering both current and ex-employees. Also, underpayments are required to be paid at the rate stated in the year it’s made good, not the year it was underpaid.

Calculating staffing costs for when the new minimum wage comes into effect and looking at its effect on your profitability may mean changes to pricing structures or other business costs.

How do I comply with the National Minimum Wage?

As an employer, you must be aware of the new rates and make sure that you apply them correctly to your employees according to their age

Incorrect deductions from pay can lead to failure to pay the National Minimum Wage. To calculate the National Minimum Wage it’s essential that you understand what elements of pay are included i.e. bonuses and commissions do count, but tips and service charges don’t.

Some deductions from wages or payments by the worker should be taken into account when calculating the worker’s hourly pay. These deductions will reduce the amount of the total earnings for the purpose of calculating National Minimum Wage.  The worker must still be left with at least the NMW after these deductions and payments have been taken into account.  The list below is not exhaustive but gives an indication of such deductions:

Employers may also neglect to include time spent on training or mandatory meetings, or arriving early for mandatory security checks, when calculating the NMW. It is crucial to take these factors into consideration and employers should make sure that all hours worked, including non-standard hours or additional hours, are accounted for correctly. Some examples include:

Bearing this in mind, it’s prudent to consider advice from an experienced expert.

How do I calculate the National Minimum Wage?

Complying with the National Minimum Wage is based on pay received and hours worked in a pay reference period.

Including the correct pay and hours worked in the relevant pay period is important to ensure an accurate calculation of wage for the purposes of complying with National Minimum Wage requirements.

Are apprentices treated differently for National Minimum Wage?

Apprentices do have a different rate of National Minimum Wage, at least initially.

The apprentice rate applies if an apprentice is:

An apprentice aged 19 or over who has been an apprentice for more than 12 months would be entitled to either the development rate or adult rate of NMW, depending on age.

Given all the complexities of the new legislation, it’s easy to see how businesses can breach the rules.

Got a question about this or any employment law issue? Our specialist, Clare Thomas, is on hand to and ensure that your business remains compliant.

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