HR Management Dimensions

Wage Costs Likely to Increase

With many employers struggling to cope with reduced revenue and often static costs, news of increases in wage costs will raise tensions. Two upward pressures are changes from April 2021 to the age ranges for the national minimum pay rates and the increase from November 2020 of the voluntary Living Wage.

The National Minimum Wage rates for those aged 23 or 24 will increase to the same rate as those aged 25 or older. The new rates are shown below.

New National Minimum Wage Rates

From April 2021, the rates will increase as below.

AgeCurrent New April 21
16 to 17-year-olds £4.55£4.62 1.5%
18 to 20-year-olds £6.45£6.56 1.7%
21 to 22-year-olds £8.20£8.36 2.0%
23 to 24-year-olds £8.20 £8.91 8.7%*
Aged 25 and above £8.72£8.91 2.2%
Apprentice rate £4.15£4.30 3.6%
Accommodation offset£8.20£8.36 2.0%

The * asterisk above identifies the rate which will be merged with the aged 25 and above band of pay.

Low Pay Commission’s Reasoning

The Low Pay Commission report is very detailed. It explains the extra difficulty of distilling the facts and implications while the pandemic continues. A few quotes may not do justice to the research and ground work undertaken. However, some glimpses of the reasons for the increases are likely to be of interest to readers.

“The increase in the NLW will mean that low-paid workers’ incomes rise broadly in line with predicted wage growth; and modestly ahead of projected increases in prices, meaning low-paid workers’ living standards should be protected. Commissioners do not believe the increase presents a significant additional risk to employment prospects, beyond the already challenging outlook.” [1]

“We do not recommend a change to the Government’s target of reaching two-thirds of median earnings by 2024, and we remain fully committed to the goal of ending low pay.” [2]

“Last year we recommended that the eligibility age for the NLW be reduced to 23 in April 2021. This remains our position as the labour market continues to treat 23 and 24 year olds similarly to those aged slightly older. For example, there are similar numbers working in the most affected sectors, similar use of the minimum wage rates, and similar rates of furlough and hours loss through the crisis. Employer representatives told us that while they were concerned about increases to the NLW, they were far less concerned with the commitment to change the age eligibility” [2]

Similarly, the Commission has considered raising the Apprentice rate to the same level as 16 and 17 year olds, “based on widespread feedback from low-paying employers. But given the volatility of the past year and uncertainty over the next, we propose to do this over two years rather than one.” [2]

The Living Wage

This is a voluntary hourly rate of pay recommended by the Living Wage Foundation. It gives pay rates just for two zones – i) London and ii) the rest of the UK. The rates applicable now are £9.50 per hour across the UK and £10.85 in London. Those took effect from 9th November 2020.

Those rates are voluntary but are signficantly higher than the National Mininum Wage rates in the previous section. Even so the Foundation states that there are almost 7,000 employers signed up to those rates and, “Over 800 more employers have accredited with the Living Wage Foundation since the start of the pandemic.” [3]

Staffing Shortages

The pandemic has led to staffing shortages despite the number of redundancies that have occurred. That may be partly attributable to individual’s uncertainty about attending particular workplaces. The signs are that employers are having to compete for staff placing extra pressure on wage rates.

Staffing Costs and Alternative Options

A recent article on our blog examined some alternative ways of staffing in preference to making redundancies. Those options are not for the faint hearted. You can read the article, ‘Is Redundancy Your Only Option?’ at this reference.

Sources:

[1] Low Pay Commission 2020 Report Summary of findings November 2020 © Crown copyright 2020.
[2] National Minimum Wage Low Pay Commission Report 2020 presented to Parliament December 2020 © Crown copyright 2020.
[3] Living Wage Foundation, Press Release 9th November 2020, 00:01

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© 2020 Jim Harrington, HR Management Dimensions

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