Law & Legislation

National Minimum Wage Increase UK - April 2022

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From April 2022 there will be new increases to the national minimum wage and national living wage. It’s essential for businesses of all sizes to understand and apply these changes to employees’ pay. In this article we look at the changes and impact of the minimum wage updates in the UK.

 

Key topics we’ll be covering:

  • Why is the minimum wage being increased?
  • What will the new minimum wage be?
  • How this will impact employers and employees.

What’s the minimum wage?

The national minimum wage is the legal minimum that an employer must pay their employees, per hour.

  • this applies to workers aged from 16
  • there are different minimum wage brackets based on workers’ ages between 16 and 23
  • apprentices also have a minimum wage rate.

What’s the difference between minimum wage and national living wage?

Both the national minimum wage and the national living wage are mandated by law. The difference is that the national living wage applies to those aged 23 and over and is higher than the minimum wage.

 

Everyone in the UK who is an employee or worker must receive pay that’s at least that of the minimum wage or national living wage. There are a few exceptions, the Acas website has a useful list you can use as reference.

 

Why is the minimum wage being increased?

The uplift in wages are to:

  • help reduce cost of living pressures
  • close the gap between the minimum wage and national living wage
  • get the minimum pay closer to that of median average UK pay

Reducing cost of living pressures

The minimum wage rates are set annually, taking into account a range of economic factors including rises in living costs and inflation. The UK is entering a time of rising household costs such as:

  • energy
  • food
  • petrol

Increasing minimum wage is an effort to reduce the burden of living costs to low income individuals.

 

Closing the gap between minimum wage and national living wage

The government are working towards closing the gap between the UK minimum wage and the national living wage. In April 2021, as well as the minimum wage and national living wage (NLW) increases, the NLW age band was widened to include 23 and 24 year olds. In 2024 the NLW is planned to also apply to those aged 21 and over.

Minimum wage and national living wage difference

Catching up with median average pay

The Government  are working to reach a target of the national living wage reaching two-thirds of median earnings by 2024, to support the wages and living standards of low-paid workers.

 

This means the hourly pay for workers on the national living wage would reach 66% of the median average pay of workers across the UK.

 

To get a deeper understanding of why the NLW and NMW are being increased, the Low Pay Commission published an in-depth report  in April 2022 explaining the reasons behind the national minimum wage increase and the plan for the next few years.

 

What will the minimum wage be in the UK as of 2022?

From April 2022 both the national minimum wage and the national living wage increased.

 

The national living wage in the UK is now £9.50 per hour and applies to workers aged 23 and over.  This is a 6.6% increase.

 

The national minimum wage rates from April 2022 are:

23 years and above rate

£9.50

21-22 year old rate

£9.18

18-20 year old rate

£6.83

16-17 year old rate

£4.81

Apprentice rate

£4.81

Accommodation Offset

£8.70

The current minimum wage for an Apprentice is £4.81 from April 2022, a 51p increase. This is now in line with the 16-17 year old rate.  

 

These details are from the GOV.UK article  ‘Large minimum wage increase to boost low-paid workers’ income’.

 

What's the impact of the minimum wage and national living wage increases?

The impact for employees 

Millions of UK workers will receive a pay rise as the National Minimum Wage and National Living Wage rise comes into effect, say the UK government.

They calculate that:  

  • around 2.5 million UK workers will receive a pay rise 
  • there’ll be a £1,000 a year pay rise for full time workers  

The government state that this will be the largest ever uplift to the National Living Wage for workers aged 23 and over, and that these changes will particularly benefit workers in: 

  • retail 
  • hospitality 
  • cleaning 
  • maintenance 

Minimum wage impact for employees

The impact for employers 

There are significant impacts to employers with these increases coming in. Most immediate and pressing are the cost implications and effect on the bottom line.  

We also consider the impact on: 

  • day-to-day business management 
  • employee relationships 
  • consequences of potential mistakes.

Cost impacts 

These rises have come at a difficult time for businesses who are already dealing with increased costs such as energy and petrol. The higher minimum wages will be another cost burden. 

 

So how much has each rate gone up in monetary terms? The table below shows the increase in pence per hour for each new rate:

 

Increase in pence 

Previous rate 

Rate from April 2022 

% increase 

National Living Wage 

59p 

£8.91 

£9.50 

6.6% 

21-22 year old rate 

82p 

£8.36 

£9.18 

9.8% 

18-20 year old rate 

27p 

£6.56 

£6.83 

4.1% 

16-17 year old rate 

19p 

£4.62 

£4.81 

4.1% 

Apprentice rate 

51p 

£4.30 

£4.81 

11.9% 

Accommodation Offset 

34p 

£8.36 

£8.70 

4.1% 

 

As well as these direct costs to pay there are also associated increases for businesses to consider, such as: 

  • holiday pay 
  • National Insurance 
  • pension payments

 

Law enforced penalties 

It’s tricky to keep on top of minimum wage increases, and that each worker gets the correct rate for their age. Both change annually after all! 

 

Even though it’s complex, calculating and paying your employees, or casual workers, in line with these new rates as a minimum, is vital.  Even pay that’s ‘a little bit out’ can add up and can cause employers big problems. 

 

For those who fall short, there are severe consequences in applying these rules incorrectly, even if it was an honest mistake: 

  • a financial penalty of up to 200% of the minimum wage arrears
  • total fine of up to £20,000 per worker 
  • public naming of the company Director 
  • company Director banned from being a Director for up to 15 years 

You can check you’re working out pay in line with the minimum wages and get a full understanding with the GOV.uk minimum wage manual.  Or, even more helpfully this handy GOV.UK calculator can be used to check you’re paying a specific worker correctly. 

 

Keeping your records in order 

As an employer you’re legally required to keep records showing you’re meeting the minimum wage requirements. For each worker, you must be able to prove you have paid at least the minimum amount for all the time they have worked. Think about investing some time on checking your record keeping is up to standard. 

 

Communicating with your team 

Dealing with disputes can be stressful and time consuming, both for the employer and employee. Another reason to ensure you get pay right first time! 

 

Be aware that payslips may be coming under greater scrutiny; a government campaign is encouraging workers to check their pay is correct.  

 

So, now might be a good time to encourage open communication around pay. Reassure your employees that on spotting a potential miscalculation, they should come to you. Make it clear that getting their pay right is as important to you as it is to them. 

Communicate minimum wage with your team

Are you keeping up with these changes?

These changes have already happened! They came in on 1st April 2022.  

There are a number of possible pitfalls for businesses who need to implement these changes, with multiple steps needed to ensure accuracy and compliance. When working on paper based, or disjointed electronic systems, be aware that multiple elements need to be checked, for example: 

  • adjusting age bands 
  • allocating employees to correct rate based on current age 
  • updating each rate 
  • holiday pay rates 
  • pension contributions 
  • national insurance contributions 
  • record keeping standards 

If implementing these updates hasn’t gone well for you, or you have doubts around accuracy, People HR software can help. 

People HR can help you stay compliant with new changes

People HR’s software can help give peace of mind when it comes to managing the new minimum wage changes. Amongst many more features, we provide: 

Even with the changes in hand with your current processes, do you fancy going through it again every year? 

 

To find out more about how People HR software can support you and your business with a straight-forward centralised HR system, get in touch with one of our experts today.