National living wage to increase to £11.44by
The Autumn Statement revealed that the national living wage will increase from £10.42 to £11.44 in April 2024. Ian Holloway explores the implications for employers.
An increase to the national living wage (NLW) was confirmed in the Autumn Statement. Chancellor Jeremy Hunt confirmed that the 10% boost to workers in his fiscal speech this afternoon, revealing that low earners can expect a pay rise of over a pound an hour from April next year.
The NLW increase has been extended to 21-year-olds, who are currently earning £10.18 per hour.
Meanwhile, earners aged 18–20 years old will see their hourly rate increase to £8.60 per hour – a £1.11 hourly bump. However, the rise has been in the works for a while, and more so, the impact will felt beyond the pay packet of UK workers.
The story so far
In October 2023, the UK government committed to increasing the national living wage to two-thirds of UK average median earnings by 2024 for workers aged 21 and over. However, the commitment did not specify a month in 2024. This was also a major announcement at the Conservative Party Conference by the Chancellor of the Exchequer Jeremy Hunt, with the headline being that the rate would be at least £11 per hour.
However, this was not really news in the true sense of the word, as the Low Pay Commission’s (LPC) Research and Analysis document referred to a rate rise needed of between £10.90 and £11.43 in 2024. Its 2023 recommendations, subsequently accepted by the UK government, talked of an increase being an ‘on-course rate’, ie, a rate that is on course to meet the target. Yet, it’s the Research and Analysis document that is clear the target date is “two-thirds of median earnings in October 2024”:
- October? There are lots of figures used by the LPC in determining their recommendations, some of which are based on values that are only available in October
- Median? Thinking back to school days, the median average is one way of determining an average value (the others being the mode and mean). A median average does exclude the values of hourly rates at the top and the bottom of pay scales and goes for the one in the middle.
So, when you hear the word “average”, remember that the UK government’s target is median average and when you hear about “ending low pay”, the Office for National Statistics (ONS) use this median average.
The LPC ran their consultation for 2024 rates between 23 March and 9 June 2023. The Chair’s letter indicated they sought evidence on:
- The affordability and effects of 2024 increases (on employers)
- The impact of lowering the National Living Wage (NLW) age from 23 to 21
- The effects of abolishing the Apprenticeship Rate
- The use of the Accommodation Offset
On the same day (21 November 2023), a UK government press release was published entitled “Record wage boost for nearly three million workers next year” which accepted the recommendations.
The following rates will apply from April 2024:
|From April 2023
|From April 2024
|Adults (23+) aka the National Living Wage
|Adults (21+) aka the National Living Wage
|Adult (21 – 22)
|Youth Development (18 – 20)
|Under 18 (above compulsory school leaving age)
|Accommodation Offset daily rate
- The Adult Rate has gone. LPC’s summary of evidence indicated most in this age bracket were paid at the National Living Wage anyway. Its ‘current thinking’ is that moves should be made towards lowering the threshold to 18
- The percentage and value increase for those aged 21 and 22 is greater than published figures. The National Minimum Wage (NMW) rate of £10.18 will increase to the Living Wage rate of £11.44 (a 12.38% and £1.26 increase)
- The LPC’s summary of evidence indicates there was “widespread support” for abolishing the Apprentice Rate, however, recommend retaining it until they are able to review further evidence
- The Accommodation Offset remains – for now
Most news coverage will say the new rates are effective 1 April 2024. Indeed, the Autumn Statement Green Book says that 1 April 2024 is the effective date. However, 1 April 2024 is the date Amendment Regulations will come into force which is not the same as the date the rate changes are effective. To comply with legislation, it’s all about the pay reference period (PRP). This is explained in the National Minimum Wage Regulations 2015, as the period for which someone is paid:
A “pay reference period” is a month, or in the case of a worker who is paid wages by reference to a period shorter than a month, that period.
It is all to do with the period that is measured for that payday – the week, the month etc.
Having established the PRP, next determine what legislation says about the rate of pay that should be paid in that PRP. The National Minimum Wage (Amendment) Regulations 2016 clarify this in simple terms and say the minimum hourly rate:
“At which the worker is entitled to be remunerated as respects work in the pay reference period is the rate that applies to the worker on the first day of that period.”
So, for example, a worker has a weekly PRP starting 30 March and ending 5 April 2024. The legislation says the worker is only entitled to the rate that is in legislation from the start of the first full PRP on or after 01 April. The first full PRP on or after 01 April for this worker starts on 6 April 2023.
Of course, there is nothing to say that an employer can pay from 1 April if they want. They don’t have to by law though.
It really is not a surprise the recommendations were accepted. The LPC is an independent body established to advise the UK government, working within a remit set by the Department for Business and Trade. It would have been more of a surprise if the UK Government had not accepted the recommendations.
So, as per the press release, the UK government has achieved its 2019 manifesto commitment of abolishing low pay. According to the definition by the ONS, this is true. It is certainly good for workers that increased rates will be payable and the NLW age limit has been reduced.
At a time when everyone is looking at the pay in their wallets, this can only be a good thing can’t it?
Consider some things:
- We are approaching a general election and manifesto commitments must be fulfilled (not that I am saying this had anything to do with the announcements)
- Remember, though, we are talking about median average earnings and it is this method of calculating an average I am sure will be left out of campaigning when the time comes (it was left out of the press release)
- Employers are also looking at their budgets. Achieving the UK government’s objective may be good for workers but is it so good for employers? Although, the LPC’s summary of evidence indicates employers generally “absorb” these increases (rather than pass the increased costs on to customers) though does result in reduced hiring rather than redundancies. Yet, with recent “record wage boosts”, the summary indicates employers are concerned about maintaining pay differentials
- Workers and employers need to be aware of the implications of higher gross pay (“worth over £1,800 a year for a full-time worker” according to the press release). More pay means more people will be bought into the income tax bracket, perhaps for the first time. The same applies with national insurance (also a cost for employers together with the apprenticeship levy). Workers are interested in net pay, not gross pay
- Further, employers also have the prospect of paying more pension contributions at some time in the not-too-distant future as well. In that regard, with the possibility of the auto-enrolment age reducing to 18, the LPC’s thinking of lowering the NLW age to 18 seems sensible
- The Autumn Statement announced HMRC will be given £163m for compliance purposes (referred to as money “to improve HMRC’s ability to manage tax debts”)
- Don’t forget that software products will have to be updated so things like warning messages apply to those turning 21 rather than 23
I can already sense the general election campaigning. The 21 November 2023 press release compares the 2024 rate to the rate the one that applied in 2010. I suppose you can make a comparison between now and 14 years ago but, to me, it says that you really can do whatever you like with figures!
Visit our dedicated Autumn Statement 2023 hub here to find all related articles from our experts.
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Ian Holloway is a highly respected payroll practitioner, writer, advisor and trainer and has worked in the payroll profession for over 30 years. Ian has hands-on experience processing payrolls from all sectors, large and small.
In 2011 he shifted focus to his passion for educating the profession, and also worked on improving Payroll...