01 June 2022
Mathew Akrigg ACIPP, policy and research officer at the CIPP, provides details of how the policy team engaged with payroll professionals to shape the content of the response to the Low Pay Commission’s (LPC’s) consultation on minimum wage rates
The LPC receives a yearly remit from the UK government to investigate and advise on future minimum wage rates. The CIPP is always keen to be involved with such an important undertaking that impacts the lives of millions across the UK.
The consultation on the national minimum wage (NMW) and national living wage (NLW) rates for April 2023 has now closed. This will be a critical year for the NLW rate, for the UK government to reach its target of two thirds of median income for those aged 21 and over by April 2024. The changes seen in April 2022 indicated that this target is still very much at the forefront of plans, as we saw a 9.8% increase to those aged 21-22. This sharp increase will serve to soften the impact to employers when the NLW scope is expanded to that age group.
The CIPP published a survey and held think tanks to gain valuable member input to the consultation response. The survey gave opinions and data from a range of sectors, covering the areas the LPC focused on in this year’s consultation questions. The think tanks provided some qualitative insights and experiences from members, providing the LPC with background and anecdotal impacts of previous NLW changes.
Some of the key areas covered in the consultation were:
the current economic outlook
the accommodation offset
compliance and enforcement.
Here are some of the main findings from our evidence gathering:
The coronavirus pandemic is still having a significant impact on employers, with many still experiencing higher than usual absences, or struggling with carried over holiday allowances. Increased wage bills are a result of the need to cover staff absence in both scenarios.
Another major business concern is recruitment and retention. The general sentiment is that this has been harder since the pandemic. Rising wages for in-demand jobs, heavy goods vehicle drivers being a cited example, are leaving some employers struggling to keep up or risking losing staff. Job seekers are currently seeking the highest rate / salary available to them and have reduced loyalty to current employers if they can find better pay and benefits elsewhere.
Outside of the minimum wage, the biggest drivers of pay decision are the cost-of-living and staff retention. Businesses seem to be increasing wages as much as they can in the face of the cost-of-living crisis; however, many are still reporting high churn rates. One such employer commented that this is still the case when they pay the real living wage set by the Living Wage Foundation.
The current proposal for the 2023 NLW is £10.32 (within a range of £10.14-£10.50). Views on the proposed rate were mixed, with a third of respondents agreeing, a third disagreeing and a third unsure. However, those on minimum wage rates were not the primary concern of businesses, rather those on wages slightly above the minimum rates.
Many employers report a squeeze in pay rates / grades / bandings due to increases in NMW. Those below the new rates are increased, as required by law; however, those above the new rates may not see a proportional increase. This leads to employees with more experience and longer tenure becoming disgruntled with newer, less experienced staff who start positions at a rate only slightly lower than their own. This issue is contributing to the staff retention issue being seen in the labour market. Employees are potentially leaving jobs that historically were relatively well paid, but as NMW rates get closer, the higher skilled but higher stress jobs aren’t differentiated enough in wage terms.
A recurring theme in responses indicates a shift from age-related pay to job role-related pay. There are many employers who pay based on the position and experience, rather than age, stating “there is no difference in work done by those age ranges”.
A common opinion is that those over 21, and even those over 18, could be living independently, have dependants and have the same (or higher) outgoings as someone much older. An 18-year-old is considered an adult, yet there’s age discrimination built into the minimum wage rates. Lowering the NLW to include all those 18 and over may encourage younger people to work, contribute to the economy and earn sufficient salaries to become independent more quickly.
However, when asked about which factors should be considered with further reductions to the relevant age for minimum wage rates, the largest response provided was ‘employer affordability’. The increasing scope of the NLW will surely have a major impact on employers and their wage bills. The LPC recommendations take these risks into consideration, aiming to make the transition as manageable as possible.
Concerns were raised regarding the guidance and enforcement action taken in relation to the accommodation offset. An individual with anecdotal evidence of an investigation has had further discussions with the LPC. The business in question was deemed to be in breach of minimum wage rules even after following the guidance available on GOV.UK. The complexity of the rules and level of guidance available, which can conflict between sources (E.g., the Advisory, Conciliation and Arbitration Service and Her Majesty’s Revenue and Customs), can cause serious problems for businesses.
Compliance and enforcement
The CIPP is eagerly awaiting further information in this area about the single enforcement body that has been announced, which will have the NMW enforcement body under its remit. It’s anticipated this will present a balanced approach to education and enforcement. Many employers require help and assistance with minimum wage regulations without fear of strict penalties and enforcement in the first instance. Obviously, repeat or purposeful offenders still need firm action and deterrents to protect individuals, but clear guidance and assistance will greatly benefit employers unwittingly breaching regulations.
Another point relating to compliance repeatedly came up within the roundtable discussions: the interaction between salary sacrifice and minimum wage regulations. Currently, an employer is unable to take an employee below NMW with salary sacrifice deductions. While this is intended to protect employees, this may instead be harming them in some instances.
With the current cost-of-living crisis having a huge impact on individuals’ finances, any additional pay that can end up in a worker’s pocket will be beneficial. Where tax and National Insurance benefits can be gained, such as with pension contributions, not allowing use of a salary sacrifice scheme can ultimately be detrimental to the employee.
For this reason, the CIPP urges that a recommendation be put forward to review the use of salary sacrifice schemes for low paid individuals.
The CIPP’s full consultation response is available for members to read on the consultations page on the website here: http://ow.ly/2wHP30skZ4o. The CIPP would like to extend a thank you to all individuals that contributed to the consultation response in any form.
Featured in the July-August 2022 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.