01 October 2024
Mathew Akrigg ACIPP MAAT, CIPP policy and research officer, discusses the Low Pay Commission (LPC) consultations, think tanks and its brand new remit
Each year the LPC consults on the future of the national minimum wage (NMW). The LPC collects data and feedback so that it can make recommendations to the government on NMW rates, and this year was no different. These rates are extremely important for ensuring low-paid workers are not exploited, but the impact of raising the rates is wide reaching and the LPC is tasked with doing so in a responsible way, considering the economy, job prospects and the labour market.
The CIPP is proud to assist the LPC in facilitating think tanks with our members, allowing you to have your opinion voiced directly to the commissioners themselves. The time they take to listen to your concerns is really appreciated, as is the time you take to provide your thoughts. Thank you to all full, fellow and Chartered members who took part in the discussions. If you want to be involved in the future, keep an eye out for invitations next April / May.
In this article, we will cover what was discussed in these sessions, but we’ll also review the discussion points in line with a new development in the NMW area. On 30 July 2024, the Department for Business and Trade released a statement regarding the updating of the LPC remit to ask that it considers the actual cost of living in the NMW rates. This will deliver a “genuine living wage” and forms part of the new Labour government’s plan to “make work pay”. On top of this, the LPC has been asked to look at a plan to remove the age-related NMW bands so that the national living wage (NLW) rate applies to all workers aged 18 and over.
Rate increases
The first of the think tank sessions we ran covered the consultation in its entirety, looking at what concerns payroll professionals had about the future of the NMW.
Unsurprisingly, a main area of concern for attendees was the dramatic increases in NMW rates over the past few years. With the previous remit of reaching two-thirds of median hourly earnings, the LPC had made recommendations that increased rates by as much as 21% for some bands. This has put pressure on budgets for employment and pay differentials between different staffing levels.
The commissioners were keen to understand how companies keep on top of wage projections to anticipate NMW rises in future. The replies were mixed, with some employers being more involved in future projections than others. What received common consensus was the desire from companies to have a period where the NMW rates didn’t rise so sharply to allow time for businesses to build up differences in their pay scales again and avoid any unwanted labour market issues.
This looked like it was on the cards, with the remit provided by the last Conservative government being to maintain the NLW at two-thirds of median hourly income. However, with the new Labour remit, it stands to reason that we will see another sharp rise as the input factors have changed. You may wish to look at your internal budgets and account for this now. A potential area you could consider is the differences between the current NLW and the Living Wage Foundation’s real living wage, which does consider the actual cost of living for its voluntary rate.
A small concern that could present itself here is that companies already struggled to understand where they can find information on what “two-thirds of median hourly earnings” means. With added steps and complication to understanding what future NMW rates could be, how will employers keep up? Clarity and transparency will be key here, from both government and the LPC.
Age bands
Another pressure employers are seeing are the constricting of the age bands. On top of the large increases to the NLW, this year we also saw the age that this rate applies to reduce from 23 and over to 21 and over. This has caused businesses with large amounts of young workers to see a double hit of increases to their budgets.
Some think tank attendees indicated they don’t make use of these bands, instead using the NLW as the baseline for their salary decision, regardless of age. These companies may be less impacted by the announcement that Labour intends to get rid of all the age bands over 18 years old; however, this will likely be consulted on to establish the best way to roll this out without having impacts on the labour market and the employment prospects of younger people.
Salary sacrifice
A recurring theme in this discussion, as well as in previous years, was the impact of salary sacrifice and its interaction with NMW. This is why this year, the LPC asked us to facilitate a second session specifically looking into this issue and what concerns our members had along with any remedies employers have implemented.
For those unaware, you can’t reduce a worker’s salary below NMW levels and reductions for salary sacrifice can cause minimum wage breaches, regardless of the benefit being provided.
With pay differentials being squeezed, what employers are seeing are employees who previously could salary sacrifice a portion of their pay for a benefit – the common example being pension contributions – no longer able to for risk of breaking NMW compliance. For pension contributions, this is particularly concerning and causing payroll professionals to have difficult conversations with employees. When a worker needs to be removed form a salary sacrifice pension scheme and placed in a relief at source or net pay arrangement scheme, they will receive the same pension contributions but may end up with less take home pay, through no fault of their own.
Our members shared their experiences and concerns with the LPC commissioners, and this is something the CIPP will continue to press on. While this area isn’t something covered in the current remit, it’s good to see the LPC exploring issues in relation to NMW and being open to opinions and ideas. The exact solution is unclear, but it seems unfair to penalise individuals who wish to save for retirement but are also low paid.
Future plans
So far, we haven’t received a response from the LPC regarding future plans, but with the change in remit we may have to wait a while further as it realigns its goals. The Labour government has asked for a reply regarding its new remit by October 2024 in anticipation of April 2025 rates being decided, and we may even see this in the budget set for 30 October 2024. We’ll keep an eye on the situation and update the payroll profession when we have more information on the 2025 rates.
CIPP members can read our consultation response on the website here: https://ow.ly/nyRi50T0Rla, along with other consultations and calls for evidence the policy team has completed.
This article featured in the October 2024 issue of Professional.