The Government has announced the rates of the National Living Wage (NLW) and National Minimum Wage (NMW) which will come into force from April 2023. In doing so, it has accepted in full the recommendations of the Low Pay Commission.
The rates which will apply from 1 April 2023 are as follows:
| Rate from April 2023 | Annual increase (£) | Annual increase (per cent) | |
|---|---|---|---|
| National Living Wage | £10.42 | 0.92 | 9.7 |
| 21-22 Year Old Rate | £10.18 | 1.00 | 10.9 |
| 18-20 Year Old Rate | £7.49 | 0.66 | 9.7 |
| 16-17 Year Old Rate | £5.28 | 0.47 | 9.7 |
| Apprentice Rate | £5.28 | 0.47 | 9.7 |
| Accommodation Offset | £9.10 | 0.40 | 4.6 |
This page brings together the LPC’s recommendations to the Government and a short report setting out the evidence base for those recommendations. The LPC’s full annual report, containing the detailed evidence informing Commissioners’ deliberations, will be published later in the year.
National Minimum Wage rises and SMP under the Alabaster Rule
Please note that as the increase is considered a pay rise, for those whose Average Earnings period up to the end of the Maternity Leave period cross the rise point, then the Alabaster rules apply and there may be a need to apply an uplift for SMP payments to reflect this pay rise.
The automated SMP calculations will apply any applicable rise if the rise is notified using the required rise value.
So how is an alabaster rise applied?
The pay engine needs to be told about the rise. This can be expressed as a percentage or cash increase or a new rate to reflect the rise. The automated SMP calculation then takes care of the SMP back-payment and any future payments due.
There are 3 options to apply a relevant rise for automated adjustment:
| Engine code | Description |
|---|---|
| M741 | Increase by a cash amount the Average Earnings used for SMP |
| M743 | Increase by a percentage the Average Earnings used for SMP |
| M745 | Update the Average Earnings used for SMP |
So, if the payroll is notified of the pay rise amounts using any of these engine codes, a recalculation of SMP will take place. This rise can be applied before, during or after SMP has commenced.
Please note that automated calculations are dependent on the user utilising the compliant automated calculations and not overriding SMP payments with alternate pre-determined amounts.
HMRC refer to this obligation in their February 2022 Employer Bulleting
NMW/NLW not as easy as you may think
National Minimum pay is not about the employee hourly pay rate, but about the hourly rate received after any relevant reductions, and deductions for the benefit of the employer.
Important factors are the accurate recording of working time as defined by NMW law and the treatment of certain working expenses, such as ‘uniform’.
Timing of work and payment is also critical. Some amounts of pay do not count towards NMW pay such as the premium element of overtime.
Absence is not counted as working time and operation of Time Off In Lieu comes with some legal timing issues.
It is possible for employees with hourly pay rates above perceived minimums (including the Living Wage foundation rates) but yet are in reality using the relevant regulations, paid below the required National Minimum and Living Wage rates applicable.
Can SD Worx help employers with NMW compliance
Minimum Pay compliance is not the switch of a button. Breaches can occur because of working practices and process that are external to any payroll activity.
SD Worx has a number of options available to its payroll user base.
National Minimum Wage and National Living Wage automated payment rates
There are options to automatically pay the National Minimum and National Living Wage rates by setting a pseudonym against the employee rate which identifies that request. Then the relevant pay rate rise applies when applicable automatically.
SD Worx Pay solution – National Minimum Wage Real-Time Compliance monitoring
An added value NMW compliance monitor that works on the real time pay period is also available as a service. Pay elements which count as minimum pay need to be identified along with the capture or work time (not absence). This will then check for that pay period based on the time and pay being applied whether there is a potential breach of minimum pay. The employer can then review identify if there is an issue and correct to prevent any criminal breach taking place.
NMW Project and specialist assistance
The SD Worx Payroll Advisory Services (PAS) can also assist with a more friendly audit approach, assistance Minimum Pay projects or guide employer with HMRC audits.
The service can guide on how flexible benefit and salary sacrifice arrangements (including pensions salary sacrifice) and aiding the employer to identify traps and breach occurrences that may not be fully understood.
Recording time worked with Protime
Accurate time records are essential to National Minimum Wage compliance. SD Worx can assist with accuracy through it’s Protime HR solutions.**
If you want to know more, get in touch with SD Worx.
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