National Living Wage – The Facts

15/07/2015 Filed under Accounts, HR

As part of the Budget announcement in July 2015, George Osborne introduced the National Living Wage. So, what does that mean for employees and employers?

Name – National Living Wage, named and introduced by George Osborne in the Summer Budget on July 8th 2015 – not to be confused with Living Wage, an independent charity offering advice and accreditation to employers who pay a calculated “living wage” for their area, not advised by the Government. This is not simply an additional tier for the National Minimum Wage rates, rather an hourly rate put in place to match the average cost living.

When? – April 2016. This is when employers will have to ensure they are paying the National Living Wage set by the Government for those entitled.

Who? – All employees aged 25 and over will be paid at the National Living Wage rate of pay.

How Much? – £7.20 per hour. This is the rate that will come into effect in April 2016. The Government will increase this rate in stages to reach £9 per hour by 2020.

What’s the difference? – National Minimum Wage – a rate of pay set by the Government that all paid workers are entitled to and all employers must pay. This rate is subject to age brackets with the highest being aged 21 and over. Current NMW rates of pay and the October 2015 rates are:

nmw table

National Living Wage – a mandatory, premium rate of pay for paid workers aged 25 and over that better meets the cost of living. Those eligible are entitled to National Minimum Wage plus the difference to be paid as one hourly rate to meet the National Living Wage rate of £7.20 per hour.

What does this mean for employers? – The higher rate of pay will obviously mean a higher wage bill for employers. With the majority of people in employment aged 25, youth unemployment at a high and an ageing workforce, those entitled to the higher National Living Wage could place a great financial strain on companies.

A time to be mindful – with the age association to this new rate of pay, the possibility of age discrimination in the workplace will become greater. Employers would be wise to bear in mind the legal protections of those entitled to the National Minimum Wage and to not subject workers legally entitled to any rate of pay to any detriment as a result. It is automatically unfair to dismiss any worker for this reason and recruitment processes must not allow for direct or indirect age discrimination related to entitled rates of pay.

Where can I find more information? – To find out how to implement these changes, more information about the impact to your business and financial planning, and how to communicate this to your workforce, contact a summ.it advisor.

Sources – XpertHR & Gov.UK