Employers face new cost pressures as National Minimum Wage rises

National Minimum Wage (NMW) rates increased by record levels from 1 April 2024, to £11.44 per hour for those aged 21 and over. This represents a real-terms pay rise for employees at this pay level, who also benefit from the further 2% reduction in employee National Insurance contributions (NICs) from 6 April 2024. 

In addition, employers that utilise specific salary sacrifice arrangements to provide benefits to their employees will need to review these to ensure they continue to meet NMW obligations. These arrangements include pension contributions, electric vehicles and more, which can benefit employees through National Insurance contributions savings and other efficiencies. But they can be derailed by NMW thresholds, meaning that certain groups of employees that may benefit most from such arrangements have to be omitted, leaving them without some of the tax-related advantages available to other, better paid, employees. 

Adversely affected employees may still be entitled to pension contributions in many cases and may also be offered other benefits, but generally on more costly terms for them than salary sacrifice arrangements, which really seems to go against government fair pay/fair incentive initiatives. When considering such incentive arrangements, employers generally want their entire workforces to benefit, not just a few, so for fair pay conditions to genuinely exist, many believe the government should consider removing barriers to enable all employees, no matter their pay level, to participate and benefit.

The above issues highlight some of the complexities that employers need to consider as a result of the increase in the NMW, which can be rather more challenging than simply 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 and consider whether they are truly compliant with the NMW regulations.