Can you avoid paying the higher minimum wage rates?
Direct age discrimination
Since 1 April 2022, the national living wage (NLW) rate for workers aged 23 and over is £9.50 per hour and the national minimum wage (NMW) rate for workers aged 21 and 22 is £9.18 per hour. In comparison, the rates for those under the age of 21 are significantly lower, at £6.83 per hour for those aged 18 to 20 and £4.81 per hour for those aged 16 and 17, making it much cheaper to recruit younger workers. Where job roles don’t require a certain level of knowledge or experience, it could make good financial sense to focus your recruitment on younger workers. Unfortunately, it’s not that simple though - where you introduce an unwritten policy of favouring the under 21s in recruitment, it will constitute direct age discrimination against older workers contrary to the Equality Act 2010 . If the only reason for your policy is to save costs and nothing else, that won’t be a legitimate aim to objectively justify direct age discrimination. In other words, you can’t discriminate just because it’s cheaper to do so than not to do so.
Pro advice. According to the Court of Appeal in Heskett v Secretary of State for Justice 2020 (see Follow up ), if you need to save costs and also reduce your expenditure, and specifically your staff costs, in order to balance your books, i.e. the need to save costs is coupled with another good reason, such as being subject to financial constraints, that can be enough to amount to a legitimate aim for the purposes of an objective justification defence (often referred to as the “costs plus” principle).
Pro advice. You can’t objectively justify direct discrimination related to the other protected characteristics such as sex and race, but age is an exception. Direct age discrimination is permitted, provided that you can objectively justify it.
Pro advice. Don’t base your recruitment decisions on job applicants’ ages, even if that’s to ensure you pay a lower NMW rate. Instead, ensure you can explain why you offered a role to a particular applicant based on the person specification for the role, their CV/application form and their performance at interview.
Pro advice. If you are going to try and rely on the “costs plus” principle to justify recruiting younger workers, make sure you’re in a position to be able to demonstrate the financial pressures you’re under so that, if challenged at employment tribunal, you can show your recruitment decision isn’t based on cost savings alone.
Unfair dismissal
Even if you recruit a younger worker, when they reach the age of 21, they’ll qualify for the higher NMW rate anyway, and then the NLW when they turn 23 (and note that the NLW age threshold is also due to be lowered to age 21 by 2024). You can’t dismiss the worker at this point because they now qualify for a higher rate of the NMW/NLW - not only is there the direct age discrimination risk discussed above, it’s also an automatically unfair dismissal if the worker is an employee (or they could bring a detriment claim in relation to the termination of their contract if they’re a worker). None of these claims require any period of qualifying service.
Pro advice. Where a worker qualifies for the next rate up of the NLW/NMW as a result of their birthday, it will take effect from the start of the next pay reference period on or after their birthday. So, if their birthday is on 5 May and your pay reference period is a calendar month, the higher rate will apply from 1 June. Write to them to let them know about their pay increase (see Follow up ).
Heskett v Secretary of State for Justice
Letter advising of NMW rate increase (due to age)
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