Discussing how the new National Living Wage will affect employers By Alan Simpson, Associate
As you’ll no doubt be aware, the National Living Wage was introduced on the 1st April 2016 for all working people aged 25 and over at a rate of £7.20 per hour.
All workers aged 25 or over and not in the first year of an apprenticeship, are now legally entitled to at least £7.20 per hour (that’s an extra fifty pence per hour) and the Government are fully committed to increasing The National Living Wage every year. The current National Minimum Wage for workers under the age of 25 will continue to apply.
Of course that means that if you’re an employer, you’ll need to make sure that you are paying your staff correctly from the 1st April 2016, as the National Living Wage will be enforced just as strongly as the current National Minimum Wage is. Employers need to ensure that they are paying their employees the correct rates of pay at all times.
The current rates are as follows:
NATIONAL LIVING WAGE RATE
£7.20 for workers age 25 and over
£6.70 for workers aged 21 to 24 years
18 to 20 YEARS RATE
£5.30 for workers aged 18 to 20 years
16 to 17 YEARS RATE
£3.87 for workers aged 16 to 17 years, who are above school leaving age but under 18
£3.30 for apprentices under 19 or who are 19 or over but are in the first year of apprenticeship
Who will be entitled to the National Living Wage?
Generally all workers who are already covered by the National Minimum Wage and are 25 years old and over are now entitled to the National Living Wage.
These groups of workers include:
• Most workers and agency workers
• Casual labourers
• Agricultural workers
• Apprentices who are aged 25 and over
Strict penalties for non-compliance
With the introduction of the National Living Wage, the penalty for non-payment will be 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment will be £20,000 per worker. However, employers who fail to pay will be banned from being a company director for up to 15 years.
The difference between the National Living Wage and the Living Wage
The new National Living Wage is different from the Living Wage, which is an hourly rate of pay that is updated annually. The Living Wage is set independently by the Living Wage Foundation and is calculated according to the basic cost of living in the UK. Employers choose to pay the Living Wage on a purely voluntary basis.
There are a number of people who are not entitled to the National Minimum Wage.
These groups include:
• 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.
The Government would assert that the National Living Wage has been designed to improve pay growth and there is evidence that certain sectors are already applying wage increases at a higher level than they are legally required to. Many firms have even pledged to offer the wages to all workers, not just those who are aged 25 and over, to alleviate concerns for lower paid younger workers and as a result improve productivity.
It is estimated however, that the National Living Wage will cost UK businesses in excess of £1.1 billion pounds in its first year alone. Despite that, a survey of more than 1000 employers for the Department for Business, Innovation and Skills found that over nine in ten employers thought that the new National Living Wage was a good idea and a similar proportion thought it would improve productivity, morale and make staff more loyal.
If you haven’t already done so you must 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 staff too. As ever if you need help or advice on how to manage the new National Living Wage, please don’t hesitate to get in touch with one of the team at JRW.