State sponsored age discrimination or keeping the young employed? The future of national minimum wage

For a number of years, the Low Pay Commission (LPC) has had its sights set on a target. That aim was for the NLW to stand at two-thirds of median hourly earnings and for that rate to apply to everyone aged 21 and over. As of April 2024, it seems that this ambitious target has been achieved, but what next?

The LPC must now look forward, beyond 2024, and decide what new focusses it should have when considering changes to NMW and NLW rates and policies.

The UK government has provided its remit to the LPC. However, this is fairly limited in scope. It has asked for evaluation of the different minimum wage rates and recommendations on increases so that rates can be as high as possible without impacting the employment prospects of the different age groups. Additionally, more evidence is needed on groups with protected characteristics, such as younger workers, disabled workers and ethnic minorities.

The LPC has been instructed to take into consideration the “state of the economy, employment and unemployment levels and the wider labour market, business impacts, and relevant policy changes.”
The LPC has released a report, titled “The National Minimum Wage Beyond 2024”. The full report is 133 pages long, so here are the headline recommendations put forward by the Commissioners:

1. Government should decide what policy outcome it wants to achieve with the minimum wage and ensure that it aligns with other policies

2. For the next steps of the minimum wage the Government should either adopt a further target or return to a principle-based or qualitative approach

3. Government should consider the case for lowering the gap between the youth rates and adult rates and for further reducing the NLW age of eligibility, and ask us to take this forward in a future remit

4. If Government agrees with recommendation 3 above on youth rates, it should consider the case for reforming the Apprentice Rate to a simple discount of the minimum wage that applies for that age group during their first year and ask us to take this forward in a future remit. For apprentices aged 16 and 17, the rate should remain aligned with the 16-17 Year Old Rate

5. Government should implement our 2018 recommendations on one-sided flexibility.

These are:

• a right to switch to a contract that reflects a worker’s regular working pattern
  
  
• a right to reasonable notice of work schedules
  
  
• a right to compensation if a shift is cancelled or curtailed at short notice

6. Government should provide us with better quality and more timely data, so we can better evaluate the effects of the minimum wage.

Beyond asking for more direction from the UK government, it seems the LPC is very interested in reducing the gap between younger workers and those 21 and over, as well as reviewing if the apprenticeship rate is still necessary.

The historic case for wage differentiation by age has been to improve or protect the employment opportunities of younger workers. The thinking being that employers are more likely to take a chance on less experienced staff if the wages reflect this.

What the CIPP has observed, in past surveys and thinktanks with the LPC, is that there remains a split with employers in how they use the different rates. Some larger employers will use the differentials between ages, as their bigger workforce make the potential savings too much to pass up. However, some smaller employers instead opt to pay all workers performing the same role the same wage.

This has several benefits, such as:

• easier administration

• parity for staff doing the same job

• reducing the risk of accidental NMW breaches

With the ‘name and shame’ practices employed by the government, it’s important to stay on the right side of the legislation. Failure to change rates when moving between age brackets is one of the main reasons highlighted for breaches.

This does raise the question: is it still right to pay staff different amounts for the same role? Do you feel there’s a reasonable justification for keeping a differential based on age, or does this equate to state-sponsored age discrimination? The wider economic impact is something that the LPC will need to consider carefully and make the appropriate recommendation on.

If you have some opinions of your own, it may be worth sharing them with the LPC in its current consultation. It’s open until 7 June 2024, with associated recommendations due to arrive with government by October. What do you feel should be the LPC’s new focus? Reducing the gap between younger workers and those over 21, or something completely different?