The Future of the National Minimum Wage for 18 to 20-Year-Olds

One of the new Labour government’s manifesto pledges is to “make work pay” with a key component being to “ensure the minimum wage is a genuine living wage.”

Labour’s Plan to Make Work Pay includes a commitment to remove the “discriminatory age bands” in the national minimum wage (NMW). Currently, the NMW for workers aged 18 to 20 is set at £8.60 per hour, compared to the national living wage (NLW) of £11.44 per hour for those aged 21 and over. The Labour government has tasked the Low Pay Commission (LPC) with recommending a new NMW rate for 18 to 20-year-olds starting in April 2025. This new rate should “narrow the gap” with the NLW, gradually working towards a single adult wage rate over several years. However, the LPC must consider the impact on employment for younger workers, their motivation to stay in education or training, and the broader economy.

Employers can be assured that the NMW rate for 18 to 20-year-olds will not be abolished in April 2025. Instead, the rate will likely increase at a faster pace than the NLW over a number of years until a unified NLW rate for all workers aged 18 and over is achieved. The timeline for this change remains uncertain, but further details are expected when the LPC announces its recommendations in October 2024.

These potential changes will not affect the NMW rates for workers under 18 or apprentices. Their rate (currently set at £6.40 per hour) will remain unchanged.

The LPC has been asked to propose an NMW rate for 18 to 20-year-olds from April 2025 that reduces the disparity with the NLW, ensuring that the NMW rate for this age group will not be eliminated next year. Instead, it will gradually increase at a higher rate than the NLW until a unified wage rate for all workers aged 18 and above is established.

The real challenge for employers may not be the rising labour costs, but rather the complexity of navigating National Minimum Wage (NMW) legislation. Understanding and ensuring NMW compliance can be daunting, as the legislation and its enforcement are notoriously intricate. It can be difficult to reconcile the applicable legislation, HMRC guidance and relevant case law so it is always good practice to seek professional advice to ensure compliance with the regulations. A breach of the National Wage regulations can result in significant costs for employers and carries the inherent risk of reputational damage.

If you would like more information on these developments do not hesitate to contact a member of BTO’s Employment Team.

Please note this update contains general information only and should not be construed as providing legal or other professional advice.