October 2018 - National Living/Minimum Wage Increases
Alan Kitto
As I am sure you will have seen in yesterday’s Budget, from April 2019, the National Living Wage will rise from its current rate of £7.83 per hour to £8.21 per hour for workers aged 25 and over; this represents an above inflation rise of 4.9%.
The Minimum Wage for those aged 21-24 year will go up from £7.38 to £7.70 per hour, for those aged 18-20 from £5.90 to £6.15 per hour and for those aged 16-17 from £4.20 to £4.35 per hour.
This increase will mean that anyone paid at the National Living Wage that works 40 hours per week, will need be paid a salary of at least £17,076.80, a not insignificant increase of £790.40 per annum, which, after applying Employers National Insurance Contributions and minimum employer pension contributions, is an additional cost per annum of almost £950 per employee.
Caution should be exercised when using the National Living Wage or the National Minimum Wage to calculate an annual salary which is then payable in equal monthly instalments, as a number of companies have now fined for paying below the required statutory rate.
A twenty-five year old employee would currently be entitled to be paid £7.83 per hour for each hour worked. Assuming they were contacted to work eight hours a day, five days a week, this would mean they would be entitled to be paid £62.64 per day or £313.20 per week.
For employees who are paid monthly, it would be usual for the employee to be salaried and paid £16,286.40 per annum (£313.20 x 52 weeks), or £1,357.20 per month.
However, because the number of working days in a month varies between twenty and twenty-three days, to meet the requirements of the National Minimum Wage the employee is entitled to be paid £1,252.80 for a twenty day month, £1,315.00 for a twenty-one day month, £1,378.08 for a twenty-two day month and £1,440.72 for a twenty-three day month.
On this basis, in months where there are twenty-two working days or more, an employee being paid £1,357.20 per month is being paid below the National Minimum Wage and our experience is that HMRC will not accept the fact that the employee is actually paid above the National Minimum Wage where there are less then twenty-two working days in a month as a defence.
If the pay period is weekly, the requirement is that the employee be paid at or above the National Living Wage or National Minimum Wage in each and every week; If the pay period is monthly, the requirement is that the employee be paid at or above the National Living Wage or National Minimum Wage each and every month.
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