With the new financial year just around the corner – there are certain regulatory changes coming into effect that may have a big impact on businesses without the right level of preparation in place. One of the main factors to consider is the new National Minimum Wage criteria which have been introduced and will be implemented as of 1st April 2021 when the new financial year begins. The National Minimum Wage will now be implemented for all individuals over the age of 23, dropping from the previous 25 year-old threshold.
For workers over the age of 23, there will be a 2.2% increase – rising from £8.72 to £8.91 per hour (£0.19).
The increased rate of pay for 21 to 22 year-olds has also risen, this time by 2.0% as the hourly amount will go from £8.20 to £8.36 per hour (£0.16).
The lower rates of pay will be set as follows:
18 to 20-year-olds will see their hourly rate increase from £6.45 to £6.56 per hour (£0.16).
16-17 year-olds (non-apprentice) will change from £4.55 to £4.62 per hour (£0.07).
*The apprentice wage – for those who apply under the criteria of being under the age of 19, or being aged 19 and over, but who are still in the first year of their apprenticeship will rise from £4.15 to £4.30 per hour.
The full breakdown of changes can be found below:
|Age||Rates from April 2021|
|23 and over (NLW)||£8.91|
|21 to 22||£8.36|
|18 to 20||£6.56|
Entitlement to the National Minimum Wage (NMW)
Most workers in the UK over compulsory school leaving age are legally entitled to be paid at least the NMW and all employers have to pay it to you if you are entitled to it. It makes no difference:
- if you are paid weekly or monthly, by cheque, in cash, or in another way
- if you work full time, part-time or any other working pattern
- if you work at your employer’s own premises or elsewhere
- what size your employer is
- where you work in the UK
Calculating the National Minimum Wage
Your average hourly pay is worked out over a period called the ‘pay reference period’. This is usually the period of time that you are actually paid for. For example, if you are paid weekly your pay reference period is one week; if you are paid monthly it is one month. A pay reference period can’t be longer than 31 days.
The pay that counts may not just be the pay you receive during the pay reference period. It also includes pay which you earn during that period, but don’t receive until the next one. For example, if you are paid monthly and do some overtime near the end of July you might not be paid for it until August. The overtime pay will still count towards your July pay.
To find out whether you are getting the NMW you need to know what elements of pay count towards the NMW. You also need to know which hours you are entitled to be paid for. This depends on which of the four types of work under the NMW rules you are:
- paid by the hour(external link opens in a new window / tab)
- paid an annual salary(external link opens in a new window / tab)
- paid per task or piece of work done(external link opens in a new window / tab)
- paid in other ways (unmeasured work)(external link opens in a new window / tab)
Pay that counts towards the NMW
The pay you receive that can be used to calculate the NMW is known as your NMW pay.
NMW pay is calculated on gross pay (before tax and National Insurance have been taken off). Your gross pay includes your basic pay for the work you have done and other types of pay which count towards the NMW. For example, sales commission, performance-related pay or other payments based on how well you do your job.
Some payments don’t count towards NMW pay. You should deduct these from your total pay before working out whether you are getting the NMW. Payments which don’t count include:
- advances of wages
- pension payments
- retirement lump sums
- redundancy payments
- rewards under staff suggestion schemes
- any premium element (in other words, anything you are paid on top of your basic pay) for working at special times, for example overtime or on bank holidays
- allowances on top of your basic pay, for example for working unsocial hours, in a particular area (for example, London Weighting), in dangerous conditions, ‘on call’, or performing special duties over and above your normal ones
- tips, gratuities, service charges and cover charges
Deductions from your pay and payments to your employer
Some deductions and payments reduce NMW pay. However, your employer cannot make any deductions from your pay, or take payments from you, unless certain conditions are met.
Deductions and payments which do not reduce NMW pay are:
- penalties for misconduct – as long as these penalties are in your employment contract
- paying back an advance of wages
- paying back an accidental overpayment of wages
- the costs of any shares or securities which you have chosen to buy in your firm
- money you choose to have deducted from your pay (for example, a pension contribution or trade union subscription), as long as the deduction isn’t required as part of your work and isn’t for your employer’s own use and benefit
- payments you choose to make to your employer to buy goods or services from them, for example, if you spend some of your wages on meals in the staff canteen
Service charges, tips, gratuities and cover charges don’t make up your National Minimum Wage pay. To find out what this means if you receive tips as part of your pay and what responsibilities your employer has, visit:
Deductions and payments which reduce NMW pay are:
- refunds of any money you spent in connection with your work, for example the cost of purchasing tools or uniform
- refunds of any expenses you incurred doing your job, such as travel costs
- deductions to cover the cost of items your employer supplied to you that are needed for your job, for example, tools or uniform
- deductions for your employer’s own use and benefit for goods and services, for example transport they provide to and from work, regardless of whether you have the option of using the goods or services
‘Benefits in kind’
Benefits in kind are anything your employer provides for your benefit apart from pay. Employers may offer you benefits in kind. However, an equivalent value in money for a benefit in kind can’t be counted towards NMW pay, except for a set amount for accommodation.
Examples of benefits in kind which don’t count towards NMW pay are:
- a car
- your employer’s contribution to your pension fund
- help with removals
- medical insurance
- lunch vouchers
- child care vouchers
Another update that is being implemented for the upcoming tax year is an increase in the employment allowance. The previous year’s allowance of £4,000 will continue to be the rate for all eligible employers.
If you require any further information on the upcoming changes or the effects they may have on your business, get in touch with one of our payroll experts.