National Living Wage to increase by 9.79% from April 2024

What was announced?

National Living Wage (NLW) rates are to increase from £10.42 to £11.44, an increase of 9.78%, which is the largest ever increase to the minimum wage.

Eligibility for the NLW will also be extended to 21-year-olds and over, that’s a 12.4% increase from £10.18 to £11.44 and there are also increases to the National Minimum Wage rates for younger workers; 18–20-year-olds will receive a 14.8% increase from £7.49 to £8.60 and those aged 16-17, and apprentices, will see an increase from £5.28 to £6.40 – that’s a 21.2% increase.

When will the change take effect?

The increased rates will apply from April 2024 and become payable in the first full pay reference period that falls either on or after 1^st April.

What are the benefits of this change?

The almost 10% increase is the biggest to the National Living Wage in more than a decade and is considered to fulfil the government’s manifesto pledge to end low pay.  

From April 2024, workers will see more in their pay received. For example, a worker, working 37.5 hours per week and paid at NLW rates, will see over £1,800 (before any other interactions or adjustments) in their annual pay.  Workers aged 21 and over will see an increase of over £2,400 and for those workers turning 21 on 1 April 2024, they will see an even bigger pay increase of 52.7% - in cash terms, over £7,700 per annum, compared to what they are currently entitled to receive as a minimum.

What does this mean for businesses going forward?

Whilst these increases are a boost to employees, employers will be faced with some major challenges to fund these increases, such as:

• Pay reviews and increases to remain compliant with complex NMW Legislation
• Maintaining pay differentials across grades to keep workers motivated and incentivised.
• Managing increased employment costs, e.g., increased employer NIC and pension contributions. For an individual on minimum wage, the employer will see an increase of c. 10% in employment costs, approximately £2,300 for each full-time employee on minimum wage. How will this be funded and what options are available?
• Implementing more controls and processes within payroll compliance to assure compliance obligations are met due to the erosion of pay buffers between the NMW rates and salaries paid.
• Reviewing employee eligibility to participate in salary sacrifice schemes where pay increases may not be in line with the NMW rate increases. 
• Updating workers and company documents in relation to employee NIC savings as salary sacrifice thresholds are eroded.
• Increased administrative burden to implement changes to payroll systems, not only for the NMW changes but to also factor in the change made to the reduction in the Employee National Insurance Contribution rate, from 12% to 10% which takes effect from 6 January 2024.

If you require any support with any of the above, please do let us know.  We have National Minimum Wage, Payroll and Employment Tax specialists on hand to discuss any concerns or answer questions. Alternatively, please complete our no-obligation NMW Assessor Questionnaire to obtain your free, high-level risk report in relation to NMW compliance -  National Minimum Wage Compliance Questionnaire