The Labour Government has set its sights on further improving wages across the UK, with significant changes proposed that will impact businesses nationwide.
In particular, they are focusing on reforms to the National Living Wage (NLW), age-based wage bands, and unpaid internships.
Understanding these changes before they are enforced is crucial for businesses to prepare for the financial and operational implications.
Linking pay to the cost of living
In April 2024, the NLW saw a notable increase, but the Labour Government aims to push this even further.
Their goal is to ensure wages are closely tied to the cost of living, offering workers fairer compensation as inflation and the cost of goods rise.
Since taking office, Labour has tasked the Low Pay Commission (LPC) with considering the cost of living when recommending future NLW rates.
For businesses, this signals the potential for more frequent and potentially larger increases in wage bills.
April 2025 is likely to see a further step in this direction, as the LPC has been directed to focus explicitly on this measure when calculating the next rate.
With this shift, businesses should begin planning for higher labour costs over the coming years, particularly in sectors with a large number of low-paid staff, such as retail, hospitality, and care.
Removal of the 18-20 age band
Labour has also shifted its attention to the current age-based wage bands. Currently, employers can pay a lower rate to employees aged 18-20 compared to those over 21.
This is particularly common in the retail, leisure, and hospitality sectors, where younger workers often fill roles.
However, Labour has promised to abolish this band, meaning that from April 2025, employers will need to pay under-21s closer to the adult NLW rate.
While this will be welcome news for young workers, businesses reliant on lower wage costs for younger staff should prepare for increased payroll expenditure.
Labour has requested that the LPC recommend a rate that narrows the gap between under-21s and those eligible for the highest NLW.
For employers, this could mean rethinking hiring strategies and budgets to accommodate higher wages for their younger workforce.
Ban on unpaid internships
Another key change on Labour’s agenda is the explicit ban on unpaid internships, except where they are part of a recognised educational or training programme.
While this policy aims to promote fairness and equal opportunities in the workplace, it will affect businesses that currently rely on unpaid interns for support.
The businesses that are most likely to be impacted by this change include those that work in the media, fashion and arts industries.
If you would like assistance understanding how these changes impact your business and how to plan for them, please contact Mehul Thaker at Raffingers on [email protected].
