Employers face new cost pressures as National Minimum Wage rises

26 March 2024

Whilst the National Minimum Wage (NMW) increase is a real benefit for employees, the position isn’t necessarily quite so positive for employers, as cost pressures will increase, particularly for those with a large proportion of their workforce paid at these levels. There is also no equivalent reduction in the National Insurance contributions (NICs) that are paid by employers. As a result of the NMW increase, employers also have added costs to consider including employer pension contributions, apprenticeship levy, and increased pay differentials between different grades of employees. 

In addition, those employers that utilise specific salary sacrifice arrangements to provide benefits to their employees will need to review these to ensure they continue to be fit for purpose. These arrangements include pensions, electric vehicles and more and they can benefit employees through NICs savings and other efficiencies. But, they can be derailed by NMW limits meaning certain groups of employees that may benefit most from these arrangements have to be left out, so they won’t have the advantages of other, more well-paid, employees. 

Employees may still be offered the opportunity of a pension or other benefit provision, but generally on more costly terms than salary sacrifice arrangements, which really goes against the fair pay/fair incentive initiative. When considering all pay and incentive arrangements, generally employers want their entire workforces to benefit, not just a chosen few. For equality of pay to be real, HMRC should consider removing barriers so all employees, no matter their pay level, can participate and benefit from these incentive arrangements.

The above highlights some of the complexities which employers need to consider as a result of the increase in NMW, rather than simply just increasing the hourly rates they pay to employees from 1 April. 

Given the increased level of scrutiny from HMRC in respect of NMW and its increasing budget for enforcing NMW (which more than doubled between 2015/16 and 2021/22) employers should take note of this and consider whether they are truly compliant with the NMW Regulations.