nmw-rates-increase

Minimum Wage Updates

The National Minimum Wage is a legally binding hourly rate of pay all workers over school leaving age are entitled to receive. Each year the rate is reviewed and set by the Secretary of State for Business, Innovation & Skills following recommendations from the Low Pay Commission.

On the 1st April 2020, both the National Minimum Wage and the Living Wage rates will increase, with workers over 25 receiving an additional 51 pence per hour in their pay packets, equivalent to a 6.2% increase on current rates.

So what are the new rates?

Information on the current rates and those payable from 1st April 2020 can be found in the table below. Making sure your business is prepared for these changes in the weeks ahead will ensure the transition to the new wage rates are applied much more smoothly during payroll processing.

Year 25 and over 21 to 24 18 to 20 Under 18 Apprentice
April 2019 (current rate) £8.21 £7.70 £6.15 £4.35 £3.90
April 2020 £8.72 £8.20 £6.45 £4.55 £4.15

How and When to apply the increase

For workers who are paid on a monthly basis, the increase will apply from the start of the new month e.g. 1st April. This is known as the ‘pay reference period‘. Pay reference periods will vary between employers but they can never be longer than a month.

So how does this apply to four weekly paid employees whose pay dates may straddle the 1st April?

For these employees, they may not receive the increase to their hourly pay straight away. This is because the legislation states that the increase applies from the first pay reference period after the minimum/living wage rate goes up.

For example, at Company A, an employers’ pay reference period starts on 16th March 2020 and runs for 4 weeks until the 12th April 2020, employees are paid a week later on the 17th April. Even though the increase has come into force on 1st April, the employees will not receive the higher hourly wage rate until their next pay reference period which starts on 13th April.

Good to Know

It’s worth keeping in mind that the increase in the hourly rate will also affect the rate of pension contributions deductible both for employees and employers. Planning this in to current cash flow forecasts to ensure all costs are planned for and covered will ensure there are no nasty surprises when payroll approval day rolls around.

Help When You Need It

For additional information and advice, contact us on 01395 320316 or via email on info@exebookkeeping.com to find out about the payroll services we offer and the small business support we provide.

Leave a Reply