In a historical move, the Government announced on 25 November 2020 that the National Living Wage (NLW) would not only be increasing in 2021 but that the age threshold would be lowered also. A client wants to know what the HR consequences of this will be on their business plus a reminder of the rates.

Below is a table which highlights the current rate of NLW and the ages entitled to it, as well as the new structure from 1 April 2021.

As seen below, the current age threshold for NLW is 25 years and above, which sits at £8.72 an hour. However, from 1 April 2021, your client must be careful not to include 23- and 24-year-olds to their list of those entitled only to the National Minimum Wage (NMW) as the NLW threshold has been lowered to cover those aged 23 years and over. Therefore, from 1 April 2021 onwards, NMW will only apply to those aged between the compulsory school age and 21.

 Age Current rates Rates from 1 April 2021
Workers aged 25 and over (NLW)£8.72 an hour
Workers aged 23 and over (NLW)£8.91 an hour
Workers aged 21-24£8.20 an hour
Workers aged 21-22£8.36 an hour

HR considerations

In light of the introduction of the new NLW threshold, your client should be vigilant to the following two things:

  • Ensuring that staff who are 23 and 24 years of age are not excluded from receiving the NLW if organisations have a pay reference period that begins on or after 1 April 2021
  • Keeping track of staff birthdays so that they always receive the correct national wage rates for their age groups – whether NLW for people aged 23 and over or the NMW for people aged between the compulsory school age and 22, as well as apprentices.

Organisations may also need to think about how the cost of this change will impact their business and how they can manage this, especially as coronavirus may have affected their business financially. Some viable solutions may be to:

  • Keep staff on furlough until the Job Retention Scheme ends at the end of September 2021, if they are eligible to use it
  • Reduce staff hours if possible and consider whether an agreement needs to be had with staff before this is done by looking through the terms of their employment contracts
  • As a last resort, consider redundancy – remember to follow the full procedure in this case.

As a priority, your client should review their current policies to identify which need to be updated to reflect this new threshold change and ensure the purpose of these policies are still relevant; for example:

  • Recruitment policies – how pay within the organisation is advertised
  • Equality and diversity policies
  • Pay policies
  • Pay review arrangements
  • Pay progression arrangements.

It is important that your client communicates with staff along the way, taking the opportunity to position the business positively and discuss possible variations to their contracts. Managers should also be fully briefed and made to understand their position in both the transition the business will need to undergo because of this threshold change and how the change may affect them.

In association with Croner Taxwise

Image designed by Freepik

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