Minimum Wage up 10% in April 2024: Cost to employers

Let’s discuss the cost to employers of the minimum wage rise April 2024.

During the last Tory Party conference, Prime Minister Rishi Sunak pledged that April 2024 would see the minimum wage increase to at least £11.00 per hour. The actual figure, announced on November 21^st, is higher than expected, rising to £11.44 per hour for all workers aged 21 and over (equivalent to £22,308 pa). Currently the minimum wage only applies to employees 23 and over. For small employers this could have a dramatic effect on their employment costs.

Presently, the National Living Wage (NLW) stands at £10.42 per hour. This equates to a monthly salary of £1,693.25 for an employee aged 23 and over working a 37.5-hour week.

Let us consider this increase for an employee above the age of 23. With a rise to £11.44 per hour, the employer will see basic pay rise from £1,693.25 to £1,859.00. An increase of £165.75 per month. On top of this, assuming current National Insurance (NI) & pension thresholds remain fixed, there would be further cost increases of £22.87 & £4.97 employer NI & pension contributions respectively. A total cost increase of £193.59.

As the NLW threshold is falling to 21, the increase in costs is even more marked. The current minimum hourly rate for a 21-year-old is £10.18, equating to £1,654.25 per month. The increase to £11.44 per hour will also see that rise to £1,859.00, an increase of £204.75. Add in the increased costs of £28.26 NI & £6.23 pension contributions (assuming they have opted into the pension) and the total cost increase is £239.24.

The announcement also saw increases in all other rates.

A further point to consider relating to budgeting for employment costs, is the proposed change regarding auto-enrolment. In early 2023 the Pensions (Extension of Automatic) Enrolment Bill was passed in the House of Commons. If this bill becomes law, then the current age threshold for auto-enrolment entitlement would fall from 22 to all workers aged 18 and over. Although there is no employer NI charged for workers under the age of 21, those workers enrolled in a pension scheme would cost the employer 3% of any salary over and above £520.00 (but less than £4,189.00) per month.

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Disclaimer - All information in this post was correct at time of writing.