Employment Law Update (June 2010)

All change in store for the Minimum Wage

The Government has given new terms of reference to the independent body that sets the National Minimum Wage, the Low Pay Commission. A key aim will be to "consider the impact on the competitiveness of small firms" of any future changes to minimum wage rates. The new brief marks a real change in attitude to low pay by central Government.

The National Minimum Wage was introduced by the New Labour Government over ten years ago. Before its introduction, only workers in agriculture enjoyed any form of minimum pay protection, following de-regulation of pay rates by the previous Conservative Government.

Although it was opposed by the Conservatives when it was introduced, the NMW has since been accepted by all main political parties as necessary, but there remain big differences between the parties on how great the pay protection given by the NMW should go. These new terms of reference are a strong early indication of the aims of the new Government and are a real change of direction from how Labour indicated they would have proceeded, if they had won the election.

What's different?

The most recent decisions on the NMW by the last Labour Government were:

• To allow 21 year olds to qualify for the full, "adult", rate of NMW;
• To put in place an NMW of £2.50 per hour for apprentices aged under 19 or aged 19 and over but in the first year of their apprenticeship.

The Labour manifesto in May's election additionally promised to increase the NMW in line with average earnings by 2015.

The Conservatives have implemented the changes to NMW for 21 year olds and apprentices agreed by the outgoing Government, but have set new aims for the Low Pay Commission, which include taking account of:

• Employment and competitiveness in the low paying sectors;
• The competitiveness of small firms; and
• The employment prospects of young people, including those in apprenticeships and internships.

What does this mean for my business?

In the immediate term, the NMW is increasing – slightly – as planned in October, so the only changes for now are those already planned.

However, the new brief for setting the NMW in future may give scope for Government to:

• Set lower rates for SMEs than larger businesses;
• Exempt apprentices from the NMW;
• Exempt "interns" – young people on work experience, where the NMW currently usually needs to be paid – from the NMW altogether.

Bearing in mind the new Government's aims of increasing employment in the private sector and cutting the deficit, the changes to the terms of reference for the NMW may be seen as paving the way for a significant loosening of the strictures of the NMW in the near future.

The Low Pay Commission will report back to the Government by March 2011, and further details of any changes proposed – which will be implemented in October 2011 – should become clear at that time.