Minimum wage, maximum returns

As most will know, the minimum wage a worker should get depends on their age and if they’re an apprentice.

The National Minimum Wage, introduced in 1999, is the minimum pay per hour that all workers are entitled to.

The National Living Wage, introduced in April 2016, is higher than the National Minimum Wage but it only applies to those aged over 25.

To further confuse matters the Living Wage Foundation, established in 2001, is a separate, independent movement of businesses, organisations and people who recommend a higher living wage than that required by law.

The Living Wage is an hourly rate set independently and updated annually. It’s calculated according to the basic cost of living using the ‘Minimum Income Standard’ for the UK. Decisions about what to include in this standard are set by the public; it is a social consensus about what people need to make ends meet. It is currently set at £9.75 (London) and £8.45 (UK Rate).

AAT is committed to ensuring all employees receive a fair days pay for a fair days work and so we recently applied for – and successfully gained – Living Wage Foundation accreditation. Accreditation helps to demonstrate to our staff, customers, suppliers and stakeholders that AAT is a responsible business and we would wholeheartedly recommend other businesses, large and small, consider signing up to do the same.

Whilst going above and beyond our legal requirements in this area, the fact AAT has thousands of apprentices, tens of thousands of members employed by SMEs and that a third of our students are aged under 25, means we also take a very keen interest in any changes to minimum wage legislation.

The Low Pay Commission, the independent body that monitors the impact of the minimum wage and advises Government on its level, is currently seeking evidence to inform its thinking about future increases and changes. AAT will be submitting a response to this call and to help inform our response we are seeking AAT member’s views.

Structure

We would like to know if AAT members believe that the five different rates of the minimum wage (under 18, 18-20, 21-24, 25 and over, apprenticeship) should be removed and replaced with a single one size fits all minimum wage in the interests of simplicity and fairness.

Whilst taking such a standard approach would undoubtedly make the concept easier to understand and administer and, it would remove the inherent unfairness of having different rates simply by virtue of age, it would also impose greater costs on many.

As with most changes, there are advantages and disadvantages and views will vary so do let us know and make your views count.

Apprenticeship wages

At a simplistic level, Apprentices may believe that the minimum Apprenticeship wage should be higher.

Indeed, the NUS describe the Apprenticeship wage as “exploitative” and would like to see the standard NMW rates apply.

The Social Mobility Commission has similarly indicated that by offering such low rates of pay, Apprenticeships are not as attractive to those from socially disadvantaged backgrounds i.e. they are more attractive to those from middle income backgrounds because parental support can offset low wages.

However, this ignores the fundamental reason why there is a different wage rate for Apprentices. Firstly, a lower rate makes taking on an Apprentice more attractive to employers and secondly many apprentices are likely to spend more time training than working. As a result, it may be reasonable that they earn less.

There are various other financial advantages accrued by Apprentices too. For example, receipt of significant financial investment from employers – it costs between £15,000-£30,000 to train an apprentice. It should also be remembered that the individual will avoid eye-watering levels of debt accrued by those who attend University.

Although 20% of AAT students are Apprentices, the majority earn above the Apprenticeship minimum wage and may therefore not feel particularly strongly about this issue. Nevertheless, we’d be interested to know their views on the topic. Likewise, with 60% of AAT members working for an SME, many of whom will be keen to keep costs down, rises in the minimum wage or standardisation for all ages would likely represent a significant cost to the bottom line of many.

As well as the financials, it’s also important to remember that there continues to be substantial abuse of the Apprenticeship wage. It’s often used to pay lower wages than necessary for employment that involves little or no training. This was recently highlighted by the Subway case where a branch was advertising a 14 month “sandwich artist” apprenticeship which involved undertaking identical sandwich making duties to other staff but at the apprenticeship wage rate rather than the appropriate minimum wage rate. Food for thought.

Compliance and enforcement

We would also like to know if AAT members believe companies that encounter genuine technical payroll administration errors, and correct the problem as soon as they become aware, should be subject to naming and shaming by the Department for Business, Energy and Industrial Strategy in the same way as companies who wilfully avoid paying staff the minimum wage.

Tesco and Debenhams are two recent high profile examples of companies that underpaid staff by an average of £40 and £10 respectively owing to payroll errors, immediately took action to address the problem and repaid staff  but were included in the list of minimum wage offenders together with companies that had purposefully avoided paying their staff correctly and had gone to great lengths to do so.

The outcome may be the same in that workers did not get paid what they should have done – unacceptable in any circumstances. However, treating employers that make a genuine mistake and pay up immediately in the same way as those that don’t, doesn’t appear to be the fairest means of policing the system…. or does it?

Have your say by undertaking the AAT Minimum Wage Survey 2017

Phil Hall is AAT's Head of Public Affairs and Public Policy.

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