Half of employers report that they have increased their lowest rate of pay in order to comply with the new statutory minimums that came into effect on 1 April 2021, according to IDR’s latest survey on employers’ reactions to the recent minimum wage uprating.

Pay rates
The adult minimum rate, termed the 'National Living Wage', is payable to workers aged 23 and over and rose on 1 April 2021 to £8.91 an hour. The age limit for the adult rate is set to come down to 21 by 2024.

The statutory minimum rates for younger workers also rose on 1 April 2021 to £8.36 for workers aged 21 and 22; £6.56 to workers aged 18 to 20; £4.62 to workers aged 16 and 17; and £4.30 for apprentices aged under 19 or in the first year of their apprenticeship.

Minimum rates for adult workers across the survey averaged £9.44 an hour – 53p above the legal minimum. However, the median rate is lower at £9.28 – 37p above the minimum. Minimum rates ranged from £8.91, in line with the new floor, to £10.03. Overall, 40% of the sample set the NLW as their minimum adult rate but a larger proportion set a minimum at £9.50 an hour or more.

NLW for furloughed workers
The survey asked employers whether they chose to delay the statutory minimum uplift for furloughed workers and just one employer – a leisure firm – did so. The majority (60%) report no longer having minimum-wage workers on furlough and the remainder (34%) applied the uplift to pay rates irrespective of whether workers were on furlough leave or not.

Views on and impact of the NLW
IDR also asked employers about their views on the level of the NLW and the majority (78%) think that the current level is appropriate. Interestingly, a further 20% think it is too low while just 2% think it is too high. Some employers voiced concerns about the knock-on impact of a rising minimum wage on differentials with rates for staff higher up pay structures.

IDR’s research on the impact of the NLW on employers’ pay practices last summer found that successive above-inflation increases in the NLW have had significant implications for wage differentials. Previously, organisations maintained differentials between grades and managed the greater costs involved by offsetting these by reducing other terms and conditions (for example, by cutting annual leave, reducing or eliminating some unsocial hours premiums or ending overtime pay). But the scope for such offsets is now more limited, with many employers having exhausted most such measures and unwilling to make further cuts in other terms. Instead, recent efforts to manage paybills have been more indirect, taking the form of changes to pay structures or expanded apprenticeship schemes, for example.

Differentials between staff on rates at or close to the level of the NLW and their immediate superiors have been squeezed at many organisations, and in some instances eroded altogether. Nine of the employers in this year’s sample indicated that differentials were a problem or could become one if the NLW increased at its previous rapid rate.

Employers consider wider structural changes
Few of the organisations have yet to overhaul their pay structures for hourly-paid staff in a more significant way in response to the NLW increases but several report that they are now seriously considering doing so. In some cases, this has been precipitated by the impact of the Coronavirus pandemic. According to one hospitality firm in the sample, as of April, “we are now at the point where we can’t squeeze [differentials] any further; some will have to go,” while a charity explains that, “we know that the rate of the NLW is moving and that has been compressing our grades for a while. And while we’ve been able to work around it [so far], we are getting to a stage where we can’t.”

Some organisations are making more use of technology – or have plans to do so – to help make the pay budget go further – for example, by making restaurant kitchens more efficient, allowing for automated check-in in hotels or extending the use of self-scanning in supermarkets. One retailer said “it’s sad but true, if you can get a piece of technology to do the job of a person, that’s what we will do…”

There is also an appetite among employers in various sectors to make staff more multi-skilled, such that they can undertake a wider variety of tasks. While this is sometimes described as role ‘enhancement’, it is also usually intended to provide employers (and sometimes employees) with greater flexibility and, in some cases, raises what is expected of staff in the lowest-paid roles.

Read the full report here.