05 February 2025
The Low Pay Commission (LPC) has released its report for 2024 National Minimum Wage (NMW) and National Living Wage (NLW) rates. The report details the rates for 2025, how the estimates are produced and dives into the evidence collection process which helps inform their decision-making process.
The CIPP are involved in this process and are pleased to have a relationship with the secretariat and commissioners of the LPC which allows our members to have their voice heard.
Key points:
- 2023 NLW estimates were undervalued due to changes in how the Office for National Statistics (ONS) conducts its Annual Survey of Hours and Earnings (ASHE) methodology. This resulted in the 2024 NLW rise being larger than expected. This may mean future changes are likely to be more modest, which is probably welcome for many employers in the current climate of employment costs.
- Earnings differentials continue to be a concern for employers and an issue that impacts payroll professionals. This harms recruitment, retention and staff morale.
- The LPC has stated that “Robust econometric analysis is not possible with the Labour Force Survey in its current state. This means we cannot rigorously assess the impacts of changes to the minimum wage rates on employment and hours. Improved access to HMRC’s Real Time Information (RTI) could provide a partial alternative.” We will need to see what response government gives on this issue and if HMRC will allow access to HMRC data sets for LPC analysis.
- The Low Incomes Tax Reform Group (LITRG) raised the issue of “elective deduction models” which targets low paid agency workers and uses a hybris system that can see them as self employed for employment rights purposes and employed for tax purposes. LITRG call on HMRC to engage with the LPC on the issues as they do not believe HMRC will identify this issue through standard compliance action, instead taking the status determinations “at face value.”
- Salary sacrifice is a large concern among employers and particularly payroll professionals recent large increases to NMW rates causing the interaction to become more prevalent. The LPC have heard from employers about needing to take employees out of salary sacrifice schemes to remain compliant.
The CIPP hosted think tanks, with full, fellow and Chartered member sin attendance, to provide feedback to the LPC, an area of focus was salary sacrifice arrangements. CIPD research, indicated in the report, shows that less than 10% of employers have withdrawn salary sacrifice as a result of NMW rates.
A key section on the CIPP’s comments and member feedback reads:
“The main policy proposal suggested was to allow salary sacrifice to take workers below the NMW, whether for certain benefits only (e.g. pension contributions) or for a wider range of benefits. The CIPP acknowledged this would require “long and thoughtful” consideration, to protect those on low incomes. “It is understood that NMW regulations are there to protect the lowest paid and most vulnerable, therefore we do not propose that salary sacrifice should be allowed to bring a worker below NMW in all situations.” Some members argued that “such allowances could only be made for OpRA (Optional Remuneration Arrangement) exempt items, such as pension contributions and cycle-to-work schemes.” Other members called for “all salary sacrifice arrangements to not impact the calculation of NMW” although CIPP recognise this approach “would require sufficient safeguards to allow freedom to sacrifice salary without unscrupulous employers from engaging in fraudulent deductions.”
More details can be read in section 9.34 - 9.42 in the report. Thank you to all members who assisted in giving feedback to the LPC commissioners and secretariat.
Of course, the report also covers the new rates to be applicable from April 2025, including detailed reasonings for those rates and how they are set to change in future. The rates from 1 April 2025 are:
|
|
Rate |
Increase (£) |
Percentage increase |
|
National Living Wage (21 and over) |
£12.21 |
£0.77 |
6.7 |
|
18-20 Year Old Rate |
£10.00 |
£1.40 |
16.3 |
|
16-17 Year Old Rate |
£7.55 |
£1.15 |
18.0 |
|
Apprentice Rate |
£7.55 |
£1.15 |
18.0 |
|
Accommodation Offset |
£10.66 |
£0.67 |
6.7 |
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