Minimum Wage - Increases agreed for April 2008

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25 October 2007

On 1 October 2007, the Employment Forum published further proposals for an increase in the minimum wage from April 2008. It is a follow-up to the second review, which was carried out in 2006 and recommended not just a 3% increase in all minimum wage rates from April 2007 but also a formula by which the 2008 rates may be set without a full public consultation. The intention was to give businesses a greater period of notice of any new rates.

The 2007 and 2008 rates were recommended to be set by reference to 40% of the average weekly earnings, as provided by the June Average Earnings Index of the previous year.

Proposed formula for future increases

In order to provide a "two year deal", the Forum recognised that a formula would be necessary by which rates may be proposed with a greater period of notice. In considering what formula to recommend, the Forum took into account other jurisdictions (namely the United Kingdom, the Isle of Man, Eire, France and New Zealand) that on average provide a minimum wage that is at least 40% of the median wage income of those jurisdictions, based on a forty-hour week.

The Index of Average Earnings measures changes in average earnings (gross wages and salaries) that have occurred, and been paid, to workers in Jersey. It includes overtime payments, but excludes bonuses, employers' insurance contributions, holiday pay and benefits in kind (e.g. free accommodation or meals).

The 2006 Index measures changes in average earnings received between the last weeks of June 2005 and June 2006 and is designed to measure changes in average earnings by matching records in consecutive years from sampled firms. The Forum recommended that

• the minimum wage from 1st April 2008 should be set by reference to 40% of the overall average weekly earnings, as released in the June 2007 average earnings statistics, subject to Ministerial approval of the resulting rate, and
  
  
• this formula should be used each year to recommend rates for the following April, subject to consideration (only where necessary) of factors which have had a major impact on the economy.

Having regard to the Average Earning Index report, the Forum considers that there are no major factors necessitating a review of that recommendation or the formula prior to recommending rates for April 2008.

The Forum will assess the appropriateness of this method and the percentage of average earnings used in the formula via an internal review in approximately six months time, before the method is utilised to recommend a rate for 1st April 2009. Ideally, the Forum would aim to gradually increase the percentage of the average wage used in the formula towards 45% over the coming years, if the States of Jersey wishes to raise the bottom end of earnings.

Minimum wage

The average weekly earnings for full-time equivalent employees in Jersey in June 2007 was £580 per week. Forty per cent of this weekly wage equates to a minimum wage of £5.80 per hour, based on a forty hour week. As the Forum's previous recommendation was for an increase equivalent to 40% of average weekly earnings, this results in a higher minimum wage than would have been recommended if the 4.7% average earnings increase figure were applied (£5.65).

The Forum noted that neither figure is incorrect. The difference in the resulting minimum wage increase results from "rounding" and due to the method of preparing the average weekly earnings figure, whereby individual employers' returns are compared year on year. So, depending on which employers return data, a different mixture of employers might then be used to create the final weekly earning figure.

The Forum recommends a minimum wage of £5.80 to apply from 1st April 2008.

Trainee rate

Responses to the Forum's 2006 review suggested that the trainee rate should not be increased significantly above or below any increase in the minimum wage. The Forum considered that, as a specific method for uprating the minimum wage for two years was proposed, it would be appropriate to return to the initial method of setting the trainee rate, which is 75% of the full minimum wage rate for 2008, as set by the formula specified above.

The Forum recommends a trainee rate of £4.35.

Accommodation and food offsets

The Forum recommended that the accommodation and food offsets should be increased proportionately to the minimum wage rate (i.e. a 7.4% increase) bearing in mind that, if increased by a different proportion, the effect of any increase in the minimum wage could be unpredictable and would be likely to have a greater impact on employers, particularly in the Agriculture and Hospitality industries.

The Forum recommends an accommodation offset of £63.47, and a food and accommodation offset of £84.63.

Summary of recommendations

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