As announced in March, the adult rate of National Minimum Wage is set to increase by 20 pence per hour to £6.70, from Thursday 1st October 2015.
The new rates are as follows;
Aged 21 and over £6.70 per hour
Aged 18 – 20 £5.30 per hour
Aged 16 – 17 £3.87 per hour
Apprentice rate £3.30 per hour
Accommodation offset £5.35 per day
The apprentice rate has been increased by £0.57 pence per hour – this largest ever increase for apprentices brings the new hourly rate to £3.30, higher than that recommended by the Low Pay Commission. The government appear to be committing to supporting apprenticeship schemes by delivering a wage that is “comparable to other choices for work”. This promotes an apprenticeship as a more genuine and rewarding option following the requirement for young people to either join an approved apprenticeship scheme, or remain in education until at least age 18.
Across the board, this October sees the largest increase to National Minimum Wage since 2007 and research by the Department for Business Innovation & Skills suggests some 1.4 million of the country’s lowest paid workers are set to benefit.
For more information about this new set of minimum wage rates please click here.
The move to National Living Wage…
Further to the National Minimum Wage announcement, the government has also pledged to bring in a National Living Wage “premium” from April 2016 for workers aged 25 and over, bringing their minimum hourly rate to £7.20.
So what does this mean in real terms? Let’s consider a 25 year old worker, paid minimum wage for 40 hours per week;
Pre October 2015;
Gross pay – 40 hours @ £6.50 £260.00
Employers NIC £14.35
Total Employer Cost £274.35 per week
October 2015 – March 2016;
Gross pay – 40 hours @ £6.70 £268.00
Employers NIC £15.46
Total Employer Cost £283.46 per week
Post April 2016;
Gross pay – 40 hours @ £7.20 £288.00
Employers NIC £18.22 *
Total Employer Cost £306.22 per week
(* based on current national insurance bandwidths)
Post April 2016, in this example the employer costs will be £31.87 per week more than pre-October 2015 – that’s an almost 12% increase in just 6 months. It doesn’t end there; the Chancellor has committed to further increases, with National Living Wage expected to be in excess of £9 per hour by 2020.
Pay is an emotive subject and debate with regard to the National Living Wage is already running high – some sectors such as the care and manufacturing industries have concerns that they simply cannot sustain such an increase, particularly when coupled with the additional costs of auto-enrolment workplace pensions, while other employers are publically skipping over National Minimum Wage in October and jumping ahead to National Living Wage straight away.
This tax year the government has introduced 0% employers national insurance rates for the under 21’s to encourage the employment of younger workers – could the move to National Living Wage encourage this further, and potentially leave over 25’s, who the legislation is intended to benefit, out in the cold?
One thing is for sure, neither rate increase can be ignored by employers. If you and your business need projected figures, advice or help planning for these changes, please do not hesitate to speak to your normal Ensors contact, or Amy Haines in our Business Support Services department.