National Living Wage and National Minimum Wage Rates

Ahead of the Budget, the government announced changes in the rates of the National Minimum Wage to apply from 1 October this year, as recommended by the Low Pay Commission. The October changes do not apply to the minimum wage for over 25s, now designated the ‘National Living Wage’, which will already have taken effect at £7.20 an hour on 1 April this year. From 2017, all increases will take place in April each year, so the October 2016 increases will remain in place for just six months.

The October changes are as follows:

The hourly rate for those aged 21, 22, 23 and 24 will be £6.95 (up 3.7 per cent on the current £6.70).

The hourly rate for those aged 18, 19 and 20 will be £5.55 (up 4.7 per cent on the current £5.30).

The hourly rate for those aged 16 and 17 will be £4.00 (up 3.4 per cent on the current £3.87).

The apprentice rate (for apprentices aged 16, 17 and 18, and those aged 19 and over who are in their first year) will be £3.40 (up 3 per cent on the current £3.30).

Finally, the accommodation offset will be increased to £6.00 a day. This is a 12.1 per cent increase on the current £5.35 and is being accelerated following the Low Pay Commission agreeing that its daily level should increase significantly.

 

From April 2017, we have one review date for all minimum rates. The Low Pay Commission will make recommendations for the April 2018 rates later this year. They have estimated that, based upon forecast increases in average earnings, the NLW rate for April 2018 will be in the range of £7.80 - £7.91. On present projections, the NLW target for 2020 – 60% of median earnings – will equate to a rate of £8.50 - £8.73.

The Low Pay Commission is basing its recommendations on hitting the 60% of median earnings target in 2020 and not necessarily on the £9.00+ figure which had been publicised when the NLW was first announced in July 2015.

As the increase in average earnings has come down, so has the relative target of 60% for the NLW. The Commission has stated that if economic growth is not maintained and/or the number of job losses attributable to the NLW is greater than the Office for Budget Responsibility had forecast, it is prepared to recommend a longer period before the 60% target is achieved.

It will continue to set the NMW rates on the same basis as before – namely ‘to help as many low paid workers as before without damaging their employment prospects’.

The BHA will continue to press for the independent Low Pay Commission to set all minimum rates on this basis as we do not believe that rates should be determined by politicians.

We are pleased that the increases to the April 2017 NMW rates were set at a responsible level and welcome the Commission’s continuing interest in the effect on employment and hours worked. The Commission are focussing their enquiries on the effect of the NLW on particular regions and particular sectors and we will work with them in this research.

Our own view is that the NLW’s effect on employment will become more pronounced as we move into the second, third and fourth year of rate increases which are set to be well above the rate of inflation.

We were pleased with the 6.67% increase in the accommodation offset which we had called for and note that the taxation treatment of the offset will be the subject of an HMRC review in 2017.

The Department for Business, Innovation and Skills has issued guidance on calculating the National Minimum Wage. You can access it here.

 

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