The UK government has announced new, increased statutory rates and limits that will be in place in England and Wales from April 2023. The updates impact a range of employment payments including, among others, national minimum wage rates and statutory sickness, parental and redundancy payments.

These rates are reviewed on an annual basis but, in 2023, given recent economic and inflationary pressures, they are set to increase considerably. For some employers, these increases could have a material impact on their overall wage bill and the cost of some types of operational change. We discuss some of the main changes below. Please see a list of the key new rates and limits and how they have changed.

National minimum wage (from 1 April 2023)

National minimum wage rates are set to materially increase at all levels and age categories. By way of example, the national living wage (for workers aged 23 and over) is set to rise from £9.50 per hour to £10.42 per hour.

Steps will need to be taken to increase pay for workers currently below these limits from 1 April 2023. Attention will also need to be given to workers whose pay is close to the new threshold to confirm that, when their hourly pay is calculated in accordance with national minimum wage legislation, it continues to meet statutory minimum requirements. Not doing so risks costly penalties for non-compliance (up to £20,000 per worker) as well as payments of arrears and being named and shamed on government lists.

Where changes are made to some workers’ pay for compliance with these changes but not others, employers may also want to consider the impact on overall pay structures. Is there now a smaller gap / increased pressure between the lowest paid roles and slightly higher paid roles? Will there be increased pressure from other workers to also receive an inflationary pay rise? Employers should review contracts and pay review practices to assess how these type of issues will be managed and be ready to answer employee questions. Some employers may consider one-off payments/bonuses to employees to support them during the cost of living crisis but targeting such measures at employees at the lower end of the pay scale can create its own problems in terms of justifying an arbitrary cut off point.

Statutory payments for time off (from 6 April 2023)

Statutory rates of pay for time off will also increase. Statutory sick pay will increase to £109.40 (from £99.35) per week while the minimum weekly pay for family leave (maternity, paternity, adoption, shared parental, parental bereavement and maternity allowance) will increase to £172.48 (from £156.66).

Week’s pay (from 6 April 2023)

The cap on a “week’s pay” will increase from £571 to £643, a 12% increase. The cap impacts the calculation of a range of statutory payments including statutory redundancy pay, statutory notice pay, pay whilst attending antenatal appointments or whilst looking for work in a redundancy situation and calculating compensation payments for, for example, unfair dismissal.

For employers considering, or in the process of, redundancy exercises, this increase could have a material impact on statutory redundancy calculations. Indeed, the overall cap on statutory redundancy payments will increase to £19,290 (from £17,130) on 6 April 2023 too.

Employment Tribunal compensation limits (from 6 April 2023)

The limits on maximum compensation awards issued by the Employment Tribunal are set to increase sharply. Both the cap on the maximum basic award and the compensatory award for unfair dismissal claims will rise by 12% to £19,290 and £105,707 respectively. The cap on compensation for other breaches (e.g. for flexible working and failure to provide a written statement of employment) will also increase.

The Vento bands, used to calculate compensation for injury to feelings awards for discrimination and detriment claims, are also set to rise sharply (by approximately 13%). By way of example, the top of the upper Vento band is set to rise from £49,300 to £56,200. For the first time, this rise takes the top of the upper Vento band to over double what it was when Vento bands were first introduced in 2002 (£25,000).

Conversely, what is not increasing is the £30,000 limit on compensation payments for loss of employment which can be paid free of deductions for tax. That limit has remained the same since 2003 meaning the value of this measure has significantly decreased over time as a result of inflation.