According to the Prime Minister’s speech at the Conservative Party conference on 06 October 2021, ‘levelling up across the UK’ will mean the country moves in the direction of a ‘high wage’ economy. Rishi Sunak said similar on 04 October 2021 when he said that an increased National Living Wage (NLW) would give people ‘the means and opportunities to help themselves’ and ‘higher wages’ was part of the plan for the future.
In its consultation that ran from 24 March 2021 to 18 June 2021, one of the issues that the Low Pay Commission (LPC) considered was the ‘affordability and effects’ of a National Living Wage rate of £9.42. This was their prediction, with a + / – 7p tolerance.
On 25 October 2021, HM Treasury announced that it had accepted the recommendations of the LPC and Autumn Budget 2021 announced at point 5.5 that the following hourly rates apply for the first full Pay Reference Period on or after 01 April 2022:
|Rate||From April 2021||From April 2022||Change||Change|
|Adults (23+) aka the National Living Wage||8.91||9.50||6.6||0.59|
|Adult (21 – 22)||8.36||9.18||9.8||0.82|
|Youth Development (18 – 20)||6.56||6.83||4.1||0.27|
|Under 18 but above compulsory school leaving age)||4.62||4.81||4.1||0.19|
* For apprentices aged 16 to 18 and those aged 19 or over who are in the first year of their apprenticeship. All other apprentices are entitled to rate applicable for their age.
The Accommodation Offset daily rate increases by 2% from £8.20 to £8.70.
Prior to the Budget, the Chancellor said:
“This is a government that is on the side of working people. This wage boost ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this Parliament.”
Whilst this does have the impact of raising wages for the worker, the cost implications on the employer will be high. Also note that the around £1,200 increase for workers is gross, i.e. before the deduction of Income Tax, National Insurance etc.
We must not forget that the UK Government has previously set a target for the NLW to reach two-thirds of median earnings by 2024 for workers aged over 21. This is assuming that economic conditions allow. The rate of inflation is an indicator of the economic conditions.
The Pay Reference Period
Whilst the necessary Amendment Regulations will state that the legislation comes into force on 01 April 2022, note that increased rates are effective from the first full Pay Reference Period (PRP) that starts on or after Friday 01 April 2022.
The two things are not the same. The PRP, according to the National Minimum Wage Regulations 2015, is the period of time for which someone is paid:
A “pay reference period” is a month or in the case of a worker who is paid wages by reference to a period shorter than a month, that period.
The date a worker is paid is irrelevant. It is all to do with the period of time that is measured for that payday. For example:
A monthly-paid employee
Will often be paid from the first to the last working day of the month and this is their PRP. In April 2022, the PRP will be Friday 01 to Saturday 30 April. The fact that the employee might be paid on 25 April has no bearing on the PRP, which is still 01 to 30 April.
A weekly-paid employee
Will have a PRP of a week. For example, someone that is paid on Friday 08 April 2022 may be paid in arrears for the week that commences Sunday 28 March and finishes Saturday 02 April 2022.
The fact the worker is paid after 01 April 2022 has no bearing on the PRP which started before 01 April 2022.
Of course, there is absolutely nothing to say that an employer cannot make payment at the increased rate from 01 April 2022 if they chose to. Indeed, commentators, announcements, newsletters and Webinars will say that the new statutory rates are effective 01 April 2022.
The purpose of this piece is to say that the employer is not breaching the Regulations if they apply the legislation as it is written and ensure that the new rates are effective from the start of the first full PRP that starts on or after 01 April 2022.
Ian Holloway is a highly respected payroll practitioner, writer, advisor and trainer. He has worked in the payroll profession for over 30 years and is now Payroll Consultant at i-Realise, an independent change management business operating in the HR & payroll space.
Ian has hands-on experience processing payrolls from all sectors, large and small. In 2011 he shifted focus to his passion for educating the profession and also worked on improving payroll software solutions to meet legislative requirements and business goals. He is the Trailblazer Chair for the Level 3 Payroll Administrator Apprenticeship and the Level 5 Payroll Assistant Manager Apprenticeship. He also advises on the practical impacts of new government legislation.
As Payroll Consultant at i-Realise, Ian’s broad experience and up-to-date knowledge allows him to publish insights to UK HR & Payroll professionals through workshops, white papers, newsletters and face-to-face presentations. Ian regularly speaks at industry conferences and is a featured writer for several Payroll, HR and Finance publications. Ian leads i-Realise’s monthly payroll forum, a confidential platform for in-house payroll leaders and managers to discuss new legislation and collectively improve best practice.
You can contact Ian at firstname.lastname@example.org