UK Budget: national minimum wage sees biggest boost on record

Employment law expert Jon Fisher at Pinsent Masons was commenting following chancellor Rachel Reeves’ autumn budget urging employers to review not only their hourly paid employees, but the contracts of salaried employees too.

“Employers must think not only about hourly paid employees, but also about salaried employees as the increasing rates bring salaried employees closer to the minimum,” said Fisher.

The NMW for those aged 21 and over, known officially as the National Living Wage (NLW), will rise to £12.21 per hour. This represents an increase of 6.7% from £11.44. It means, once the increase takes effect in April, the minimum annual salary for a worker aged 21 or over working for 37.5 hours per week will be more than £23,800.

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“Employers will need to review their position even where an employee’s rate is more than the new minimum. This is due to the complexity of the NWM calculation and is particularly relevant in regard to employers who operate salary sacrifice schemes, such as pensions contributions.”

“Employees must not be allowed to sacrifice their pay to below the NMW, and employers should ensure that their payroll systems have measures in place to prevent this from happening,” Fisher said.

Most benefits and many pay premiums do not count towards the NMW.

Fisher said: “It may be advantageous for employers to consider consolidating any such benefits and premiums into the basic rate, especially where there are concerns about affordability. That will often involve a change to contractual terms, and so employers looking to do this before the new NMW rate will need to kick off discussions as soon as possible, particularly given the proposals in the Employment Rights Bill which would make changing contracts more difficult.”

The government also confirmed that the minimum wage for 18- to 20-year-olds will rise from £8.60 to £10 per hour – a 16.3% boost. From April, this group will earn £19,552 a year, up from £16,815 per year, if working a 37.5-hour week.

The hike in rates – the largest on record – marks the first step towards the government’s move towards a single adult minimum wage where all workers 18 and over would be entitled to the same minimum hourly rate.

Apprentices will also see their rates increase from £6.40 per hour to £7.55, meaning their annual wage will go up to £14,762 from £12,513.