Imminent wage increases

01 March 2019

This article was featured in the March 2019 issue of the magazine.

Danny Done, managing director at Portfolio Payroll, sets out what you need to know about impending changes to minimum wage rates and how to prepare for them 

New rates have been announced for both the statutory minimum wage and the voluntary living wage, which are scheduled to come into effect in spring 2019. These planned increases have received a significant amount of media attention over recent weeks and it is important that you are clear on these new requirements and how they stand to impact your business. 

As announced by the Chancellor in the autumn 2018 budget, the statutory national minimum wage (NMW) rates for all workers will increase following recommendations from the Low Pay Commission (LPC). The Treasury predicts that these changes, which will come into effect from 1 April 2019, will benefit 2,400,000 workers and improve the financial security of a growing number of those in insecure employment. 

Under these amendments, the minimum hourly rate for those aged 25 and over, known independently as the national living wage (NLW), will increase by 4.9% from £7.83 to £8.21 an hour. This means a full-time worker paid at the national minimum should benefit from a £690 annual pay rise. 

In line with this, the minimum rate for 21–24-year olds will increase from £7.38 to £7.70 an hour; 18–20-year olds will see an increase from £5.90 to £6.15 an hour in their pay; and 16–17-year olds will be entitled to £4.35 an hour, up from £4.20 previously. The minimum hourly rate for apprentices will also change, rising from £3.70 an hour to £3.90, providing they are under the age of 19 or 19 or over and in the first year of their current apprenticeship. 

Failing to comply with these increases will leave employers open to the imposition of substantial penalties by HM Revenue & Customs (HMRC) which has continued to take a hard line with those that break NMW law. Offenders could face financial penalties of up to 200% of the underpayment, up to a maximum of £20,000 per worker, and find themselves being publicly ‘named and shamed’ as a NMW offender.


...important to make good use of the time leading up to April 2019 in order to prepare to comply...


Not to be confused with the NLW, the voluntary living wage rates are also set to increase in May 2019. These rates, otherwise known as the ‘real living wage’ (RLW), are assessed each year by the independent Living Wage Foundation and are calculated based on the true cost of living. Changes will see these rates grow from £10.20 an hour in London and £8.75 an hour in the rest of the UK, to £10.55 and £9.00 respectively. 

Due to their voluntary nature, there is no legal requirement for employers to implement the RLW for its workers. However, recent estimates suggest over 4,000 employers commit to doing so, recognising this initiative as a sign of their commitment to employee wellbeing and a useful way to attract and retain talent. Employers that have already signed up to this scheme have until May 2019 to implement the new rates: this is because, although the increases were announced in November 2018, participating employers have six months to begin to pay at the higher rate.

Given the above it is important to make good use of the time leading up to April 2019 in order to prepare to comply with these requirements. Employers should complete a full review of staff salaries ahead of time and work closely with their payroll and personnel departments to ensure wages are in line with legal requirements. Employers that pay higher than the minimum wage will also need to conduct a review in case the increases now overtake their current pay rates given the size of the individual increases. 

An important point to remember is that the new rates are only effective from the first day of a new pay reference period which starts on or after 1 April 2019. For example, if an employer’s pay reference period starts on the 20th of each calendar month, the new rates will not need to be paid until 20 April. 

As a change in pay rate constitutes a change to terms and conditions, pay rises should be confirmed in writing to employees within a month of beginning to pay the new rate. Ideally, written confirmation of the increase should be given in advance of implementation.

Ultimately, whilst the changes in minimum wage rates can seem problematic at first, the requirements will be far less burdensome providing employers plan ahead. Pay can be a highly sensitive issue in the workplace and getting this right will be key to maintaining good employee relations, as well as in avoiding potential tribunal disputes and significant financial penalties.