How to comply with national living wage increase
Simon Parsons, Director of UK compliance strategies, SD Worx
Clear risks remain for employers as meeting legal national living wage obligations can be much more complex than simply paying a worker the correct rate per hour, explains Simon Parsons, director of UK compliance strategies at SD Worx
From 1 April 2024, the national living wage increased to £11.44/hour – providing nearly three million low-paid workers with a pay rise of almost 10%.
Despite the positive impact on working families amid the cost of living crisis, employers must swiftly adapt to manage the implications on their wage bills and payroll processes.
So, let’s look at the intricacies of national living wage (NLW) and national minimum wage (NMW) compliance laws and address the strategies that organisations should adopt to get ahead of the challenges.
The complexities of NMW law
Surprisingly, more employers who are inspected for NMW obligations are found to be falling foul of the law than you might expect. But these breaches result in no mere slap on the wrist – they are a high risk, expensive, and disruptive mistake for a business to make.
In February 2024, the government named and shamed over 500 employers who had failed to pay their lowest-paid staff the minimum wage, collectively leaving around 172,000 workers almost £16m out of pocket.
Alongside impacting the livelihoods of so many, there was huge reputational damage resulting from the exposé and the guilty businesses rightly had to pay back what they owed to their staff and faced hefty financial penalties.
However, clear risks remain for employers as meeting legal NMW obligations can be much more complex than simply paying a worker the correct rate per hour.
In fact, there are numerous rules and questions to consider before you can be sure of total compliance.
For instance, do your payroll exception reports consider deductions which reduce pay for NMW purposes or pay that doesn’t count in calculations? Do your time off in lieu (TOIL) or overtime policies cover all additional time outside of basic contractual hours?
And if you’re in the service or food industry, are you making sure that you’re not including tips and service charges in your NMW pay calculations?
Reviewing these intricacies is the first step towards compliance.
Extra risks for large employers
Many of us might assume that NMW breaches are the preserve of small businesses without the resources to take proper care of their payroll. However, even nationwide organisations with dedicated HR and payroll professionals can break the law and face the repercussions.
After all, a greater number of departments and employees bring more complexities, and extra ever-changing rules and regulations, for payroll professionals to stay on top of.
Often, the larger the employer, the larger their brand name, meaning non-compliance brings greater reputational risk for big businesses than ever.
In the government’s latest report, household names were flagged as NMW lawbreakers. As customers vote with their wallets amid economic turmoil and a potential recession, now is not the time to be underpaying staff.
2024 rates
For pay periods commencing 1 April 2024, the national minimum wage (NMW) increases across all age bands. The new rates will be as follows:
£11.44 per hour for workers aged 21 and over (up from £10.18-£10.42 depending on age)
£8.60 per hour aged 18 to 20 (up from £7.49)
£6.40 per hour for aged under 18 (up from £5.28)
£6.40 per hour for apprentices (up from £5.28).
Applying a proactive compliance approach
To prevent breaches, businesses must take an active role in monitoring and helping their finance employees, proactively addressing compliance issues.
After all, payroll can be a long and complex task where legally there’s little room for error.
Business leaders need to take on the responsibility of caring for their payroll team. To aid and celebrate their work, organisations must continuously offer training and progression opportunities to support the personal career development goals and aspirations of individuals.
Leaders also need to continuously improve the payroll processes that their employees use – they should cast a critical, outsider’s eye over current processes, interview team members, and land upon suitable improvements that benefit everyone.
In today’s hybrid world, many of these changes will likely be technology-based or involve working with external partners and suppliers.
Technology’s role in financial planning
Technology has a huge role to play in payroll, but only when used correctly. In fact, many companies that were recently named and shamed by the government blamed tech and admin issues as the cause for their minimum wage errors.
Ultimately, these mistakes show that businesses need robust, comprehensive technological support to prevent compliance oversights and ensure watertight financial strategies. Proven tools such as digital payroll applications and automated processes help to save time, cut the risk of human error, and offer peace of mind, with their reports often based on real-time data for powerful forecasting and payroll-related insights.
Many platforms guarantee continuous legal compliance with built-in rules embedded into the software, alongside the guidance of local experts. Some providers even offer all-encompassing cloud-based payroll software, including local best-of-breed and ERP-based solutions that integrate seamlessly with HR, absence management, time and attendance systems, and more.
These technological aids can prove crucial amidst ever-changing legislation. With comprehensive tech cover, people professionals across the UK can ensure legal compliance, nurture a positive brand reputation and, perhaps most importantly, foster a happy, healthy, and productive workforce.
