Changes to the National Living Wage – what does it mean for payroll?

23rd Nov 2021
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The Chancellor, Rishi Sunak, delivered his Autumn Budget & Spending Review to an expectant House of Commons last month, with the key aim of ‘building a stronger economy for the future’. Among a raft of measures to promote recovery and growth for UK businesses was the announcement of an increase in the National Living Wage and the National Minimum Wage, a move that’s aimed at levelling up wages across the UK workforce.

But what’s the difference between the National Living Wage and the National Minimum Wage? And how will clients’ payrolls need to be amended to take this increase into account?

Knowing which wage rate to apply

Having a minimum wage that applies to all UK employees is a positive move. It ensures that everyone in the workforce gets paid a fair rate for the work they do, and that the money they earn provides enough income for the worker to support themselves and any dependents.

But how do you know which rate to apply when paying a client’s employee? In a nutshell, the minimum wage rate is worked out based on the person’s age and whether they’re currently an employee of the company or studying as an apprentice.

  • The National Living Wage (NLW) – the NLW is paid to employees who are 23 years old or over and is set at a higher rate to cover the additional responsibilities and costs that an older adult will incur. This might include making rent payments, financially supporting children or covering the domestic costs of cohabiting etc.

  • The National Minimum Wage (NMW) – the NMW is paid to employees or apprentices of at least school-leaving age and is paid until the employee qualifies for the NLW. The NMW is paid at a lower rate than the NLW to reflect the age and lower financial responsibilities of the employee. At this age, workers are likely to be living at home, without the domestic costs and overheads of an older adult.

The NLW is paid at a single rate from 23 years old upwards. The NMW falls into four other separate bands, depending on the age and apprentice status of the employee.

 

23 and over

21-22

18-20

Under 18

Apprentice

April 2021 (Current rate)

£8.91

£8.36

£6.56

£4.62

£4.30

 
What will the new NLW and NMW rates be from April 2022?

The announcements made by the Chancellor in his Autumn Budget mean that both the NLW and the NMW will be increasing. 

The Government accepted the recommendation of the Low Pay Commission to increase the National Living Wage next year by 6.6%, to £9.50 an hour. This increase to the NLW begins from the start of the next tax year, in April 2022, and represents a pay rise worth over £1,000 per year for any full-time workers.

The NMW will also increase, with the minimum wage for people aged 21-22 set to rise from £8.36 to £9.18 an hour, and the Apprentice Rate increasing from £4.30 to £4.81 an hour.

From April 2022, you’ll need to recalculate any employees on NLW or NMW pay rates, using the rates from the table below:

 

23 and over

21-22

18-20

Under 18

Apprentice

Rate from April 2022

£9.50

£9.18

£6.83

£4.81

£4.81

 
Setting up the new rates in BrightPay

If you’re already a BrightPay user, you’ll know how easy it is to amend the hourly rate for employees in your payroll software. Hourly pay rates for any affected employees or apprentices will need to be actioned prior to the April payroll run, so it’s worth scheduling in time now to review each client, highlight the affected employees and make the necessary changes.

BrightPay makes this job as straightforward as possible by streamlining all the key processes:

  • Run a report to check for affected employees – you can quickly run a report in BrightPay for each client and use this employee report to show each worker’s age and date of birth (DOB). This will allow you to highlight any individuals who are over 23 or who may be 22 and turning 23 by April next year – qualifying for the NLW. You can also run a minimum wage report to make sure all employees are being paid at least the minimum rate for their age/status. Also, if BrightPay detects that you’re paying an employee below the rate that applies to them, then the system will notify you so you can amend this error.

  • Amend the pay rates to reflect the new rates – setting up a new hourly rate is a piece of cake in BrightPay. Any hourly rates you add or amend will be available for selection when processing each employee’s payslip. Just click on ‘Hourly Rates’ under ‘Employer’ on the menu toolbar and then click ‘New’ to add in the updated NLW and NMW rates and make them available for the client’s payroll.

  • Get final client approval before running April’s payroll – once the new rates are live and the payroll for this client has been set up for April 2022, you can then send the payroll for final approval with the client. If the client is using BrightPay Connect, you can carry out this whole process via the online client hub, with the client reviewing and approving the payroll data online and checking that the rates are correct. The minimum wage report and notification system can also be useful for the client to review, giving you an extra level of oversight when switching over to the increased NLW and NMW rates.

If you’ve not yet made the switch to BrightPay, why not try our 60-day FREE trial and see just how easy it is to run, amend and maintain your client’s payroll.

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