The New Living Wage

Discussing the new National Living Wage and National Minimum Wage and how it will affect employers.

The National Minimum Wage (Amendment) Regulations 2016 has now been made and comes into force on 1 April 2016. This makes it clear, if there was ever any doubt,  that the compulsory National Living Wage for over 25 year olds promised by the Government last year is nothing more than a tweak to the minimum wage regulations.

The National Living Wage, which is effectively a higher minimum wage for those over the age of 25, comes into effect on 1st April when it will be set at £7.20 an hour. It will then rise to 60 percent of median earnings by 2020, when it is expected to reach well in excess of £9 per hour.

This should not be confused with the Independent Living Wage which is voluntary for employers. This is set by the Living Wage Foundation with rates currently at £8.25 per hour.

The new National Minimum Wages from 1 April 2016 will be:
•    Age 25 plus – £7.20 per hour (the National Living Wage)
•    Age 21 to 25 – £6.70 per hour
•    Age 18 to 21 – £5.30 per hour
•    Age 16 to 17, above school leaving age but under 18 – £3.87 per hour
•    Apprentices – £3.30 per hour (for apprentices under 19 or 19 and over who are in the first year of apprenticeship)

There are a number of people who are not entitled to the National Minimum Wage or National Living Wage.
•    Self-employed people.
•    Volunteers or voluntary workers.
•    Company directors.
•    Family members or people who live in the family home of the employer who undertake household tasks.

All other workers including pieceworkers, home workers, agency workers, commission workers, part time workers and casual workers must receive at least the National Minimum Wage or National Living Wage as appropriate.

What happens if an employer does not pay the correct rate?
It is against the law for employers to pay workers less than the National Minimum Wage or National Living Wage as appropriate.  If an employer doesn’t pay the correct rate, an employee has the right to make a complaint to HMRC who will investigate the complaint and if they find that an employer hasn’t paid the correct wage rate, can send a notice of arrears plus a penalty for not paying the correct rate of pay to the employee.

The Government would state that the living wage has been designed to improve broader pay growth and there is evidence that the supermarket sector in particular are already applying wage increases at a higher level than they are legally required to do so. Many other firms have pledged to offer the wages to all workers not just those aged 25 and over to alleviate concerns for lower paid younger workers and as a result improve productivity.

It is estimated however, that the higher minimum wage will cost businesses in the UK in excess of £1.1 billion pounds in just the first year.  Despite that, a survey for the Department for Business, Innovation and Skills of more than 1000 employers found that over nine in ten employers thought that the new Living Wage was a good idea and a similar proportion thought it would improve productivity, morale and make staff more loyal.

Make sure that you have updated your payroll accordingly to take account of who qualifies for the new rate and of course you will need to communicate these changes to your staff too.

Dundee Employment Law
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Whitehill Faulds
Bonnyton Road
Kirkton of Auchterhouse
By Dundee
T: 01382 320357