Ahead of the General Election result on Friday 13 December, Richard Maitland, Partner at MHA MacIntyre Hudson, says both parties need to clarify their promises to raise the National Minimum Wage (NMW) and National Living Wage (NLW) fast or employers could face substantial difficulty planning for next year
Maitland said, “Promises about raising the NLW in particular are flying thick and fast. Labour’s plan to raise the NLW ‘rapidly’ if they win office is causing particular uncertainty. In previous years businesses would have already known at this point in the annual NLW / NMW cycle what the rates would be in April, so they could plan for the year ahead.
“As matters stand both parties are making big promises which might be hard to implement on the timetables they have set. The Conservative Party wants to raise the NLW (currently £8.21 per hour) to £10.50 per hour by 2024 and intends to combine this with lowering the age threshold at which the NLW becomes payable, from age 25 to 21. The Labour Party plans to increase the rate to £10 per hour and make this applicable to all workers aged 16 and over, effectively abolishing the lower ‘youth rates’ of NMW that currently apply to those aged under 18 (£4.35 per hour), 18 to 20 (£6.15 per hour) and 21 to 24 (£7.70 per hour). They have set no concrete timetable but express an intention to implement this rapidly.
“Employers don’t know which set of promises will come into effect, or even if either will in the event of a hung parliament. In the absence of this usual clarity, employers of minimum wage workforces will be setting their HR budgets going into 2020 without knowing the vital component of pay. Such employers often operate on very thin margins so even relatively small increases in pay rates can have big knock-on effects.
“If an employer doesn’t know how much they will have to pay, they don’t know the base figures they will need to use to calculate key items like bonus awards and pension contributions. They also don’t know how much will be left in the ‘HR pot’ to fund other key employee incentives and benefits. This could cause significant disruption at a time when business is already grappling with uncertainty around Brexit.
“So one of the first objectives for the new government after Friday must be to give UK business the certainty it needs around the NMW and NLW by at the very least confirming the rates from April 2020, and following this up with concrete details as to how they will implement their ambitious plans for future changes.”