Important changes to NLW and NMW
National living wage increases have become a metronomic feature of the financial year, and while this year’s increase is nothing untypical, both Furlough arrangements and the changes in age brackets mean that the rate increase is more complex than usual. There are three main highlights to familiarise yourself with before this April’s NLW and NMW changes; the increase amount, the age bracket the increase relates to and the Furlough scheme.
Firstly, the rate change itself. On the 1st of April 2021, NLW is due to increase from £8.72 per hour by 2.2%, to £8.91. In addition, NMW is set to increase by 2% for workers ages 21-22 to £8.36, 1.7% for workers aged 18-20 to £6.56, and 1.5% for workers aged 16-17 to £4.62.
Importantly however, the NLW age bracket for workers will drop from 25 years old to 23 years. This is particularly impactful for an industry like hospitality where there is a high proportion of younger employees. In fact, by dropping the age from 25 to 23 it will impact the pay of roughly 10% of hospitality employees.
Whilst the increase will be welcomed by employees across the UK, they may be disappointed to learn that this will have no impact on the amount they receive whilst on Furlough. Government guidance has stated that while Furlough will continue into the summer, employees on Furlough are not subject to the increase and their furlough pay will remain based on reference periods before to the increase. However, employers will have to pay NLW / NMW for holiday pay or while an employee is on training.
This will give some businesses a conundrum on how to maximise the benefit of the Furlough and Flexible Furlough schemes when considering who to bring back to work and who to keep on the scheme. By leaving employees over the age of 25 on the scheme while bringing back younger employees, some of the increase will be held for the short term, before reaching the point of relinquishing Furlough. It is important to acknowledge that any factors concerning employees should not contravene age discrimination legislation.