The National Living Wage (NLW) is a minimum hourly rate payment that legally has to be paid to employees who are 25 years of age and over. Currently (April 2016) the rate stands at £7.20 per hour with it due to rise to £9 per hour by 2020.
Why Is This Being Introduced?
One in five workers in the UK is low paid compared to one in six in other advanced economies. Employees who have been receiving the National Minimum Wage could see an increase in their salary by a third, an immediate increase of 50p per hour.
I Thought There Was Already a National Living Wage?
Yes, but this has been voluntary. This is calculated on an independent basis and driven by the basic cost of living in that area.
For example, the independently calculated NLW for employees in London is higher than what has been implemented as of 1st April 2016, standing at £9.15 per hour.
This is more than what the NLW will be in 2020 as announced by the Chancellor. Elsewhere, independently calculated NLW is set at £7.85 per hour, again, more than what has been implemented recently.
What Have Employers Said About This, Especially Small Businesses Where the Impact Could Be Greater?
George Osborne has stated that businesses small and large will be helped as these changes come into force. Corporation tax is being cut by two percent and small businesses will see support in the form of an increase in the new Employment Allowance by 5%, to £3000.
However, it is predicted that some 60,000 people may lose their jobs as a result of the changes as some employers struggle to adhere to this change.
What Penalties Will Employers Face If They Don’t Pay the NLW?
Penalties for non-payment of the NLW will be doubled, from 100% of the money owed, to 200% as of 1st April 2016. The maximum penalty will be no more than £20,000 per worker.
Employers found guilty can be disqualified as a company director for up to 15 years. A new enforcement team has also been set up at HM Revenue and Customs (HMRC) to pursue criminal prosecutions.
When Do You Have to Pay the New Rate?
The law on payment of the NMW operates around a pay reference period system and the same will be for the NLW. Therefore, if workers are paid weekly the pay reference period will be a week, if paid monthly the pay reference period will be a month.
This basically means that if your workers are paid monthly from 20th of the month then you start paying eligible workers the NLW from this date.
Do I Have to Pay a Worker from Their Birthday When They Hit 25 Years of Age?
No. The same principle applies in relation to the pay reference period. Therefore, it will not have to be paid from the date of their birthday. Instead it will be paid from the date the new pay reference period starts after their 25th birthday.
Can I Just Employ People Who Are Below the Age of 25?
No. It is envisaged that some employers may try to avoid the increased costs associated with paying the NLW by employing people who are younger than 25. This would be a hugely risky move since the law prevents people from being refused a job because of their age (Age Discrimination Legislation).
If an employer was to dismiss someone because they reached their 25th birthday where the sole or principal reason was to avoid having to pay them the living wage, legally it would be classed as an automatic unfair dismissal and age discrimination.
We Use Pay Scales Based on the Skill of the Worker. Will I Have to Adjust These Now?
This depends on whether this is a contractual right as stated in the workers contract of employment. This change may lead to some of the higher paid workers complaining that the pay rates no longer represent the skill and value of work they bring to the Company.
Unless there is a contractual right for the skilled worker to be paid at a rate that is calculated by reference to other rates there is no need to increase any other pay rate. The April increase is purely in relation to a legal requirement, not a representation of skill value.
However, this change is thought to not only bring about a better way of living for low paid workers, but an increase in employee work satisfaction and increased morale at work. You will need to consider the impact this change and increase for lower paid staff may have on your current skilled workers and whether they may feel this closes the pay gap between them as a more highly skilled worker compared to that of a low skilled worker.
Do I Have to Pay My Apprentice Who Is 25 and over NLW?
Within the existing minimum wage structure, there is a special rate that applies to apprentices, which will continue to be maintained regardless of the introduction of the living wage. This means that not all employees aged 25 and over will be caught by the new rate.
Apprentices who are under 19, or 19 or over but in the first year of their apprenticeship, are entitled to the apprenticeship rate, which is currently £3.30 per hour. Apprentices who are not in this category are entitled to the minimum rate appropriate for their age. Therefore, apprentices who are 25 or over and still within the first year of their apprenticeship will only be entitled to £3.30 per hour.