The National Living Wage Increase in 2020
by Kelly Wallace Horne
The 1st April 2020 sees what the Prime Minister, Boris Johnson has called the “the biggest ever cash boost” to those earning the National Living Wage. Every year on the 1st April the Government raises the National Minimum Wage and National Living Wage in accordance with advice from the Low Pay Commission. In 2020 the National Living Wage is set to rise by 6.2% – four times the rate of inflation. This is inevitably going to receive a mixed response, with workers looking forward to a boost to their income and some employers struggling to meet these new legal requirements. In this article, we outline the changes and how they affect workers and employers in the equine industry.
What is the difference between the National Minimum Wage and the National Living Wage?
The National Minimum Wage applies to most* workers aged 16-24 years and Apprentices. It is split into age bands and is the minimum amount of money per hour that employers must pay their employees.
The National Living Wage applies to most* workers aged 25 years or more and is also the minimum amount of money per hour that employers must pay their employees.
The reason the Low Pay Commission gives for having different levels of wage depending on your age is that there is “evidence that younger workers are more at risk of being priced out of jobs than older workers, with worse consequences if they end up unemployed.”
*The National Minimum Wage and National Living Wage applies to the majority of workers. Exceptions include workers who receive accommodation as part of their employment, in which case the Accommodation Offset Rate can be deducted from the National Minimum and Living Wages – find out more here. Another exception within the equine industry is those working in the horseracing sector. The National Trainers Federation sets the minimum wage for workers in the racing industry – find out more here.
What are the new National Minimum Wage and National Living Wage rates?
|Year||25 and over||21 to 24||18 to 20||Under 18||Apprentice|
|1st April 2019 (current rate)||£8.21||£7.70||£6.15||£4.35||£3.90|
|1st April 2020||£8.72||£8.20||£6.45||£4.55||£4.15|
Why have the UK Government agreed to such a large increase?
Each year the wage increases are set by the Low Pay Commission, which is an independent body that advises the government about the National Living Wage and the National Minimum Wage. The UK Prime Minister Boris Johnson says, “Hard work should always pay, but for too long, people haven’t seen the pay rises they deserve”. The rise follows the Conservatives’ promise during its annual conference in September 2019 to increase the National Living Wage to £10.50 an hour over the next five years if “economic conditions allow”. The Conservatives had also written the pledge into their manifesto, which would see an individual’s net earnings rise by £1,900 over five years.
“We want to end low pay and put more money in the pockets of hard-working families,” Chancellor Sajid Javid said. “This latest rise will mean that since we introduced the National Living Wage in 2016, the lowest paid will have had a wage increase of more than £3,600.”
You can read more about the governments plans for boosting low paid workers earnings on the Government website here.
What this means for workers
Aged 25 or more:
Currently (February 2019), workers aged 25 or more earn a minimum of £8.21 an hour, which gives them a gross annual salary of £20,492.16. The new National Living Wage is £8.72 an hour, or £21,765.12 annually.
This is an annual increase of £1,272.96 for a 6 day/48 hour week.
Currently (February 2019), workers aged 21-24 earn a minimum of £7.70 an hour, which gives them a gross annual salary of £19,219.20. The new National Minimum Wage for 21-24 year olds is £8.20 an hour, or £20,467.20 annually.
This is an annual increase of £1,248 for a 6 day week.
Currently (February 2019), workers aged 21-24 earn a minimum of £6.15 an hour, which gives them a gross annual salary of £15,350.40. The new National Minimum Wage for 18-20 years olds is £6.45 an hour, or £16,099.20 annually.
This is an annual increase of £748.8 for a 6 day week.
Government guidelines on maximum working hours state that someone under 18 years of age must not work more than 40 hours a week or 8 hours a day. For this reason, I’ve calculated a daily rate for this age bracket.
Currently (February 2019), workers under 18 years of age earn a minimum of £4.35 an hour, which gives them a gross daily rate of £34.80. The new National Minimum Wage for under 18’s is £6.45 an hour, or £51.60 per 8 hours day.
This is an increase of £16.80 per 8 hour day.
Currently (February 2019), Apprentices earn a minimum of £3.90 an hour, which gives them a gross annual salary of £8,112. The new National Minimum Wage for Apprentices is £4.15 an hour, or £8,632 annually.
This is an annual increase of £520 for a 5 day/40 hour week.
What this means for employers
For many employers, finding an extra £700-£1273 a month per employee is going to be tough. With claims that the HMRC is targeting the equestrian industry and issuing hefty fines, the Equestrian Employers Association (EEA) is warning all those that employ staff to look at their business models and future-proof their businesses now.
Responding to the announcement Tullis Matson, President of the Equestrian Employers Association said,
“It is absolutely right that everyone is paid fairly. However, in some cases, equestrian businesses are already struggling and this rise will be a challenge for them. It’s vital that increases in the National Living Wage are manageable and do not put jobs at risk.
This Government has promised a reduction in the jobs tax through an increase in the employment allowance. With a National Living Wage increase of this size now on the horizon, it’s critical that it delivers swiftly.
As a small employer, equestrian businesses must consider a rise in their prices in response to an NLW increase of this magnitude. There needs to be an industry-wide increase, the employer cannot be tasked with this on their own.”
The wider effect of the National Living Wage increase
It’s also worth taking into consideration that increases in the National Living Wage effectively close the pay gap between legal minimum pay and the salaries of those already earning more than the National Living Wage. Should the government follow through on increasing the National Living Wage to £10.50, employers are going to have to factor in pay increases for their experienced employees and those with specific skills (for example, an HGV licence), too. As we discuss in our article New Years Resolutions for Equine Employers: How to ensure a strong start to 2020, employees with these specialist skills do expect, and rightly so, more than an entry-level, minimum wage. With the National Living Wage increasing so rapidly, there is a risk of employers losing these skilled employees unless they can maintain the pay gap between them and the entry-level, more junior team members.
There are no one-size-fits-all answers as to how employers can maintain their business profitability and still meet these pay increases, but employers and employees alike must be mindful that the National Minimum and Living Wages are not optional or a guideline – they are a legal requirement. Make sure you’re prepared for the 1st April 2020!