National living wage – things to think about

Mar 29, 2016 | Recruitment

The National Living Wage (NLW) is the new statutory minimum wage rate that must be paid to workers aged 25 and over. It comes into force on 1 April and will be initially set at £7.20 per hour. For workers under the age of 25, the existing National Minimum Wage rates still apply.

The compulsory NLW is not to be confused with the living wage rate which is set annually by the Living Wage Foundation, and which is the hourly rate of pay (as calculated independently) considered to be the minimum that a worker needs to earn to cover the basic costs of living. This rate is currently higher than the new statutory NLW, but is entirely voluntary.

Failure to pay the NLW could result in an investigation by HMRC, and a notice to comply and pay arrears plus a financial penalty. This penalty is going up at the same time as the introduction of the NLW to 200% of the total underpayment. There is a maximum penalty of £20,000 but this is in respect of each worker, not a total for the employer.

Employees can also bring an individual claim for unlawful deduction from wages, or breach of contract, and employers could also be ‘named and shamed’ by the Department for Business, Innovation and Skills who periodically issue press releases for this purpose.

As well as obviously reviewing your payroll and ensuring the pay rates of those currently earning below the NLW are lifted to ensure compliance, you may also want to consider differentials. As the NLW is a fair jump from the current National Minimum Wage rate, you may find workers on the next level up in your business are now paid not very much more than the lowest paid workers. To ensure that higher responsibility levels are reflected, you may want to look at increases further up the chain, either now or at the next annual pay review.

You should also start planning ahead now for further increases. The Government’s plan is for the NLW to rise to 60% of median earnings by 2020, likely to be around £9 per hour, and this should be taken into account into long term plans you make in respect of recruitment, roles and responsibilities and business objectives.

Increases will be recommended by the Low Pay Commission, which also recommends increases to the National Minimum Wage. The rates for all statutory minimum wage groups will from next year be reviewed and increases take effect from 1 April, rather than 1 October as has been the case previously.

If you would like advice on implementing the National Living Wage in your business, get in touch.