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REGULATORY
IMPACT ASSESSMENT
NATIONAL
MINIMUM WAGE REGULATIONS 1999
(AMENDMENT) REGULATIONS 2000
Introduction
1.
This assessment estimates the costs and benefits of the changes
to the National Minimum Wage Regulations 1999 known as the National
Minimum Wage Regulations 1999 (Amendment) Regulations 2000. The
purpose of the Regulations is to fulfil the Government's commitment
to raise the adult rate of the minimum wage to £3.70 and implement
various recommendations of the Low Pay Commission.
2.
In 1997 the Government appointed an independent body, the Low
Pay Commission (LPC) to make recommendations on the appropriate
rates for the national minimum wage, to monitor its implementation
and to evaluate its impact. The Government published the LPC's
first report in June 1998. In that report, the LPC recommended
that the adult rate for the national minimum wage should apply
to all workers over 20 and be set at £3.60, and suggested that
it should rise to £3.70 from June 2000. The Government accepted
the recommendation on the initial rate, but chose to wait until
more evidence on the initial impact of the minimum wage became
available before making a decision on the increase to £3.70. With
the aim of getting this evidence, the Government asked the LPC
to produce a further report by December 1999.
3.
The LPC's second report was published in February 2000. While
they did not make any specific recommendations on the rates, the
LPC found little adverse effect from the introduction of the minimum
wage, and re-stated their original suggestion on increasing the
rate:
"Our
original advice to the Government was that the rate of £3.60
should be increased to £3.70 in June 2000, and that to do so
would have no adverse economic consequences. We remain confident
in this advice. It is supported by all the available economic
evidence, including the current buoyant labour market, and the
way firms have adapted to the initial rate."
"The Story So Far" - Second Report of the Low Pay Commission
(Dec 1999) p116
Consequently,
the Government chose to accept the suggestion and announced this
in February 2000, postponing the increase until October 2000 to
allow business ample time to prepare.
4.
The LPC made a number of specific and detailed recommendations
in their second report. In particular, they recommended that those
on the Government's National Traineeship scheme (and its equivalents
in Wales, Scotland and Northern Ireland) under the age of 26 should
be treated in the same way as traditional apprentices and those
on the Government's Modern Apprenticeship scheme. The effect is
to exempt National Trainees in England and Wales, Jobskills Trainees
in Northern Ireland and Skillseekers (on SVQ levels 2 and 3) in
Scotland from entitlement to the minimum wage in their first year
on the scheme.
"In
essence this training is the same as a Modern Apprenticeship,
although leading to NVQ Level 2 rather than Level 3. It is treated
quite differently for minimum wage purposes, however, because
of the timing of the introduction of National Traineeships:
they were too new for us to consider in the first report ...
there are good grounds for a National Trainee with employed
status to be treated in the same way as a Modern Apprentice."
"The Story So Far" - Second Report of the Low Pay Commission
(Dec 1999) p95
5.
The LPC also recommended that postgraduate students on sandwich
courses be exempted from the minimum wage in respect of work that
formed part of their course. This is being done to bring such
students into line with UK undergraduate sandwich students, for
whom such an exemption already exists.
"The
requirement for students who undertake a placement with an employer
as part of a postgraduate course to be paid the minimum wage
is anomalous and may damage students' prospects of finding suitable
placements. Employers with budgetary constraints may opt to
provide placements to undergraduates instead."
"The Story So Far" - Second Report of the Low Pay Commission
(Dec 1999) p70
6.
The first year of the national minimum wage has also brought to
the attention of the Government and LPC a number of technical
issues concerning:
(i)
the way the rules operate for travel time for those who must move
from assignment to assignment during the working day,
(ii)
the way the rules operate for those on so-called zero-hours contracts
who are permitted to go home while on call but may instead chose
to go elsewhere, and for those who are allowed to sleep at work
while on call;
(iii)
the way the record keeping rules apply to those who are responsible
for submitting their own timesheets. The remaining regulations
are therefore intended to clarify these issues.
7.
In each case the policy intention has not changed and the Regulations
have been functioning adequately but it was considered that there
was scope for further clarity. Any impact on business for these
minor regulatory changes is expected to be negligible. There may
be some costs attached to the new travel time rules, particularly
in the social care sector, but only if employers have currently
been ignoring the DTI guidance, which clearly states that travel
time between assignments attracts the minimum wage.
Purpose
of the Amendment
8.
This amendment therefore fulfils the Government's commitments,
made when accepting the recommendations of the LPC, and can be
summarised as follows:
| Regulation
3: |
To
raise the national minimum wage rate for adult workers from
£3.60 to £3.70 |
| Regulation
4(1) & (2): |
To
extend the one-year exemption for people on the Government's
Modern Apprenticeship programme so that the exemption also
applies to National Trainees and their equivalents |
| Regulation
4(2): |
To
exempt postgraduate students on sandwich courses from the
national minimum wage (NMW) |
| Regulation
6(1): |
To
amend an anomaly relating to zero-hours contracts and sleeping
time |
| Regulation
6(2) & (3): |
To
amend the Regulations so that the treatment of travel time
is correct for those travelling between assignments |
| Regulation
7: |
To
apply Regulation 5 to salaried-hours work |
| Regulations
2,5, 8 - 10: |
Clarification
of technical legal points |
Low
Pay Commission Assessment
9.
The LPC's second report analysed and evaluated the impact of the
minimum wage on the economy, on the labour market and on particular
sectors and groups of workers. It was the result of nine months
of intensive research, evidence-gathering and statistical analysis.
This Regulatory Impact Assessment therefore draws on the work
of that body.
10.
The LPC used the latest available ONS figures in their second
report. These figures do not cover the period after the introduction
of the minimum wage. Such figures will not be available until
autumn 2000. But the existing figures allow reasonable estimates
of the effects of the minimum wage. The LPC found that:
"Although
a large number of workers have benefited, our findings show
that there has been no detrimental impact on the economy, with
around 0.5 per cent being added to the national wage bill and
with no measurable impact on overall employment. In many low-paying
sectors, there has actually been expansion in employment."
"The Story So Far" - Second Report of the Low Pay Commission
(Dec 1999) p115
Costs
and Benefits
11.
The proposed rise from £3.60 to £3.70 is a rise of 2.8 per cent
over 18 months and its impact on the overall wage bill of employers,
while impossible to measure accurately, will be extremely small.
On the other hand, a rise of up to 10p an hour will make a very
real difference to those workers whose pay has not risen since
April 1999 and who are still earning £3.60 an hour.
12.
The LPC estimated that around 1.5 million adult workers benefited
from the introduction of the National Minimum Wage in April 1999
at the original rate of £3.60. In the absence of data on how many
of these workers have had, or will have, their pay increased since
then regardless of the statutory rise, we must start with the
assumption that all 1.5 million workers who were originally covered
by the £3.60 rate are still on that rate and therefore stand to
benefit directly from the 10p increase in the minimum wage in
October 2000. In this extreme case, the cost to employers would
be around £180 million in the first year. Similarly, the maximum
benefit to workers on low pay would be around £180 million. If
this were the case, this increase in the wage bill as a direct
result of the minimum wage would represent an increase in the
total wage bill of the economy of 0.036 per cent.
13.
However, these are the maximum possible figures and are estimates
based on data covering the period before the introduction of the
Minimum Wage. When new data from the New Earnings Survey become
available in the Autumn, it will be possible to estimate more
accurately the real effect that the uprating of the adult rate
is likely to have had on people's pay. It is likely that this
new data will show that the direct impact of the uprating on the
wages of low-paid employees is substantially less than the estimate
contained in this RIA. The main reason why most employers who
were paying less than £3.60 to their workers before April 1999
may not face any increased cost from the 10p rise is because they
will in any case have increased worker pay levels to £3.70 or
more by October 2000, through the normal wage setting process.
Some other workers will have had their pay uprated to a level
somewhere between £3.60 and £3.70 (1).
If we were to assume that the wages of all those who had a pay
increase to £3.60 in April 1999 would have had another increase
in any case by October 2000 (because of inflation), then the increase
in wage costs of this regulation would be negligible.
14.
The first year exemption for National Trainees, Jobskills Trainees
and Skillseekers (bringing these schemes into line with Modern
Apprentices who already have such an exemption) is expected to
affect around 20,000 young people in the UK who are aged 18 plus
and have employed status. There will be some cost saving to employers
if they decide to pay less than the minimum wage to the affected
trainees for the exempt period, but this is negligible in terms
of overall labour costs. The more significant, though indirect,
benefit, as identified by the LPC, is that by correcting the former
inconsistency in application of the rules to different types of
trainee, employers, training providers and the trainees themselves
will be able to make decisions about the appropriate level and
form of training for individuals without the distorting effects
of different minimum wage application.
15.
The change to the National Minimum Wage regulations covering the
treatment of post-graduate students doing work experience as part
of their courses is expected to affect only a few hundred people,
according to DfEE figures. The direct costs and benefits of this
change will also be negligible in terms of overall labour costs.
The indirect benefit, as identified by the LPC, is that these
post-graduates will no longer be at an unfair disadvantage when
competing for work placements with undergraduates who are already
exempt by the existing regulations.
Monitoring
and Review
16.
The Government announced in February this year that it is asking
the LPC to continue to monitor the impact of the minimum wage
and report again by July 2001. It sent the new terms of reference
to the LPC on 15 May and made these public by a press notice on
23 June.
Contact
point:
David
Wagstaff
Employment Relations
Department of Trade and Industry
020 7215 0252
Footnote
In addition,
a small proportion of workers may not benefit from the uprating
of the Minimum Wage since their employers will continue to fail
to comply. We expect the figure for non-compliance to reduce over
time, but this will be as a result of enforcement activity, publicity
campaigns and word of mouth rather than as a result of the rate
increase brought about by this amendment.
June
2000
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