CIPP response to the Consultation on the National Minimum Wage
30 September 2015
Following the announcement in the Summer Budget that ‘The Budget will support working people by introducing a new National Living Wage’ the Low Pay Commission (LPC) were tasked with producing two reports.
The first report is due by early February 2016 on the future level of the NMW rates and the second report by October 2016 which will provide recommendations for the rate of the NLW from April 2017.
The Government has set an ambition that the NLW should continue to increase each April to reach 60% of median earnings by 2020 with the aspiration of a £9 NLW rate by 2020.
Alongside this the Government is undertaking a review in to the NMW cycle with the intention to align all changes to NMW - the earliest this could happen, subject to review, is April 2017.
Summary of key findings
The announcement at the summer budget that a new mandatory rate for all workers aged 25, named the National Living Wage (NLW), which will apply from April 2016, has caused concern for respondents who currently pay at or slightly above rate for National Minimum Wage (NMW), the main concerns being:
- Complexity – two titles, potentially could result in slight differences in administration and certainly add another layer of complexity to the operation of the National Minimum Wage.
- Guidance, which is largely considered to be good, needs to continue to provide clear and concise guidance in a timely manner so as to ensure that all employers become aware, before April 2016 of this new pay element.
- Implementation dates should be aligned, as having two does nothing to simplify the processing of pay and therefore we would urge that the two are aligned at the earliest available opportunity. October would be considered the most consistent month to apply but April would align with the month where the majority of payroll changes are currently made.
- The suddenness of this announcement and its subsequent implementation has not allowed a significant amount of lead in time, sufficient but not significant time. Setting aside the short, medium and long term budget needs of employers, what was clear from our survey was that payroll software is critical to the success of National Minimum Wage operation, lead in times for new policies and rates need to take into account the requirements of payroll software developers.
- The limitations that this has on an employer’s ability to set their own pay and reward structure. We are assuming that the National Living Wage rate will equally restrict employers from offering a pay package that includes an element of salary sacrifice where the worker is paid no more than NMW and NLW rates?
- As the rates of NMW and NLW continue to rise, so it becomes more of a challenge to maintain the differential where higher rates are paid as a result of promotion or qualifications. Comment was made within the survey response at how there is a risk, however small, that where statutory rates become so high, the incentive to develop skills and advancement is lost.
Thank you once again to members who took the time out of their busy schedules to complete our survey and thus contribute to the future delivery of the National Minimum Wage and National Living Wage.
To read the full response click below