How will businesses respond to the Government’s pledge to increase the minimum wage in 2024?
While the National Minimum Wage (NMW) has helped tackle low pay, it has had little impact on reducing in-work poverty. When the National Living Wage (NLW) was introduced in April 2016, low pay reduced even further, yet a large proportion of workers still earn below the real Living Wage and, rather than a reduction, there has been an increase in in-work poverty.
Initially, there were concerns that some employers would struggle to meet the higher wage bills and be forced to cut staff. However, employment actually saw a significant increase and, pre-coronavirus, was at a record high.
The latest report (published August 2020) from the Learning and Work Institute explores employer perceptions of the planned increase to the NLW, and how employers may respond, particularly in light of the new challenges they face from the coronavirus pandemic.
What is the minimum wage?
The minimum wage came into force in the form of The National Minimum Wage Act in April 1999.
In 2015, the new Conservative Government announced their plan for a National Living Wage (NLW) in the form of a higher wage for employees aged 25 and over.
Today, the NLW is:
£8.72 for those aged 25 or over
£8.20 for 21-24 year olds
£6.45 for 18-20 year olds
£4.55 for 16-17 year olds
£4.15 for apprentices
The minimum wage is widely considered to be one of the most successful policies in recent years. Its introduction led to a substantial reduction in extreme low pay, without negatively impacting employment levels.
Read more:?‘she only makes teas? The worst excuses for underpaying staff revealed
How is it set?
At the same time as the minimum wage was introduced, the Low Pay Commission (LPC) made up of representative employers, trade unions and economists was set up to advise the government on the minimum wage level.
Part of the responsibility held by the LPC is to review and recommend NMW and NLW increases, with a key element of their responsibilities being to strike the right balance between recommended increases and avoidance of job losses and unemployment.
What’s happening to the National Minimum Wage in 2024?
With the minimum wage so far managing to maintain wide popular support, the current government has committed to further increases with the intention of reaching two thirds of median earnings by 2024, as well as extending it to all employees aged 21 and over. At the time the pledge was made, this was projected to be 10.50.
However, although the government announced this pledge when employment was at a record high late in 2019, now the impact of the coronavirus pandemic is starting to become clear and the associated expected unemployment will almost certainly affect their plans.
How will businesses respond if the increase goes ahead?
In March 2020, at the outset of the coronavirus lockdown, the Learning and Work Institute conducted a survey exploring business perceptions of the minimum wage and the 2024 plan to increase the National Living Wage.
UK businesses anticipate the following changes will be required in response to the planned increase in 2024:
21% plan to pass on cost to customers with price increases
15% plan to hire fewer staff
10% plan to hire more workers on temporary or flexible contracts
10% plan to reduce or change staff benefits
9% plan to increase staff training to increase productivity
6% plan to reduce or remove supervisor or managerial roles
6% plan to reduce training budgets
6% plan to reduce hours (staff hours and/or operating hours)
50% don’t expect to require any changes to accommodate the cost
9% don’t yet know what they will do, or if they will need to make changes
From a desire to pay employees only when there are customers to serve, to seeing it as acceptable not to pay workers until theyve proved themselves, you wouldn't believe some of the excuses given to HMRC for underpaying staff. more»