Letter advising of NMW rate change

The National Minimum Wage (NMW) is paid according to a worker’s age and is reviewed (and has so far been increased) annually. When either their birthday or an annual NMW increase means that your employee is entitled to a pay rise, you should notify them about the change to their hourly rate in writing. Use our letter for this purpose.

NMW rates

The NMW legislation prevents employers from paying their staff less than the statutory NMW rate. The NMW rates are reviewed each year by the Low Pay Commission (LPC) and the LPC then makes its recommendations to the government for proposed changes. Whilst the government can then choose to freeze existing rates, historically this has never happened and there has been an increase every single year since the NMW became law in 1999. The increase usually takes place on October 1 each year. There are also age bands in place which mean that the NMW must be paid according to a worker’s age. These are for workers aged 16-17; 18-20 and those over 21. There is also an apprenticeship band for those who are aged under 19, or who are aged 19 and over but in the first year of their apprenticeship.

Workers who are of compulsory school age are not entitled to the NMW.

Notifying changes

You’re normally given at least a couple of months’ warning by the government that NMW rates are to increase. When the rates do change, you must action them immediately. A failure to do this could mean that you’re reported to HMRC; it has the power to investigate breaches and to impose fines for underpayment. There are also a number of criminal offences supporting enforcement of the NMW. T he annual increases to the NMW rates apply in respect of your next pay reference period which begins on or after October 1. This is regardless of the date of your annual staff pay review. So your employees are in no doubt that you’re paying them the correct NMW rate, write to all of those affected no later than one month after the change. Ideally, it’s better to write to them early, once the change in legislation has formally been confirmed. Our Letter Advising of NMW Rate Change includes a paragraph explaining the NMW increase and the impact this has on the employee’s hourly rate.

Happy birthday!

It’s particularly important that you keep track of the ages of your younger employees as their birthday can easily move them into the next NMW band. It’s your responsibility to ensure that the correct rate of NMW is being paid, not theirs. If an employee is entitled to a higher rate of pay due to a change in age, it must be paid with effect from their birthday. When NMW rates increase due to age, you should again write to the employee explaining what has happened and why - and this should again happen no later than one month after the change. Our letter includes an optional paragraph covering this particular circumstance. If you accidentally miss a rate increase, backdate the outstanding amount and pay it to the employee immediately. That way, it should head off the risk of a complaint to HMRC.