REWARD
Delivering election pledges on minimum wage rates
Danny Done, managing director at Portfolio Payroll, discusses the implications of the twomain political parties’ plans
O ver the lead up to December’s general election, political parties had been keen to promise a host of changes to the way in which the UK operates, with the issue of national minimum wage (NMW) being a regular feature. Both the Conservative and Labour parties announced plans to revamp the existing NMW system, which would likely cause many employers to adjust their pay practices. The Conservative party (which as we know has formed the government) specifically pledged to increase the national living wage (NLW) to £10.50 per hour by 2024. The NLW, which currently stands at £8.21, is the highest minimum wage rate and available to workers aged 25 and over. However, the Conservative party also plans to lower this age threshold incrementally to 23 and above in 2021 and finally 21 and above by 2024. This proposal will effectively revert the minimum wage structure to how it was before the introduction of the NLW by re-applying the highest minimum wage to those aged 21 and over. Whilst fewer age bands will make the system a little easier for employers to understand, it means a significant increase in hourly pay for many workers, which some small businesses may struggle to achieve. Certain employers may have to amend their business practices as a result to cope with these wage increases. For example, minimum wage employers may consider increasing the number of zero-hours staff on their payroll, in favour of those on fixed-term contracts, to give them more flexibility and avoid overcommitting to paying a certain
amount of money each month. The Labour party pledged to do away completely with the current tiered system for NMW and instead to ensure all workers aged sixteen and over would be entitled to a minimum of £10 per hour. The party suggested that this could result in a pay rise for 7,500,000 workers across the UK. ...will effectively revert the minimum wage structure to how it was before the introduction of the NLW... Whilst the promises of increasing NMW rates will be music to the ears of staff, minimum wage employers can be forgiven for feeling less enthused. After all, many small employers already struggle with tight profit margins and these proposed increases will only place an additional strain on their respective wage bills. Smaller employers are likely to be more cautious when it comes to hiring more staff, given the increased financial commitment, which may have a knock- on effect on productivity and their ability to meet customer demand. Furthermore, employers who pay above the NMW as part of an employee benefits scheme may also have to enhance their own wage offerings in order to maintain a competitive advantage in the job market.
With the above in mind, it should be noted that the Living Wage Foundation also recently announced updated rates for the voluntary real living wage (RLW). Although the RLW is non-mandatory, figures reveal over 6,000 UK employers have pledged to provide staff with these hourly rates, which are said to be based on the ‘true cost of living’. As a result, the RLW rate for workers now stands at £10.75 per hour in London and £9.30 across the rest of the UK. These independent rates stand to be unaffected by the result of the election, and businesses have until May 2020 to implement these in order to continue calling themselves a RLW-employer. As far as employers are concerned, it is important to consider how the proposed wage increases stand to affect business operations. Minimum- wage employers should be accustomed to the process of increasing salaries in accordance with new legislation; however, it is worth reviewing payroll systems to ensure the correct mechanisms remain in place for increasing salaries from day one. Human resources departments also stand to have an important role in these procedures, by ensuring personnel files correctly record employees’ ages as this will prove essential in determining their NMW entitlement. After all, failure to comply with NMW requirements may leave employers open to tribunal claims. Employers may also face a separate financial penalty issued by the secretary of state that is set at 200% of the total underpayment, up to a maximum of £20,000 per employee. n
| Professional in Payroll, Pensions and Reward | February 2020 | Issue 57 34
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