New law: New changes to the Living Wage and National Minimum Wage rules this year

First, they must factor in an important change to the age thresholds for the living wage rate generally when calculating pay rises this year and in future. Second, in this year only, they need to take account of the effect of the furlough scheme on living and minimum wage payments.

For the first time, the new living wage rate is payable to workers aged 23 or over, rather than the previous age of 25. This could significantly affect employers with a young workforce, such as those in entertainment and hospitality.

The interaction between the furlough scheme (technically, the Coronavirus Job Retention Scheme) and the living and minimum wage rules also needs to be taken into account, and can be complex. For example:

• Time spent not working while on furlough does not count when calculating whether an employee is being paid the minimum wage, but time spent on work-related training does.
• The period used to calculate the living and/or minimum wage for furloughed workers can depend on when they first became eligible to be furloughed, and can result in higher pay rises for some furloughed workers than others.

It is anticipated that this will only be an issue this year, as the furlough scheme is currently projected to end on 30 April 2021 - although it is possible it could be extended.

HM Revenue and Customs (HMRC) has issued guidance for employers ‘Steps to take before calculating your claim using the Coronavirus Job Retention Scheme’, setting out how the interaction works.

Operative date

• 1 April 2021

Recommendation

• Employers should:
  • Ensure 23 and 24-year olds receive the living wage from 1 April 2021
  • Read the HMRC guidance on the GOV.UK website.