The government has introduced the National Living Wage (NLW) which in turn will increase the national minimum wage for over 25 year olds from 1st April 2016.
The current National Minimum Wage is £6.50 per hour for people over the age of 21 years old. In October 2015, this was increased to £6.70 per hour. The announcement on 08 July 2015 introduces a new 'living wage' of £7.20 per hour from 1st April 2016. This is in effect a further top up for staff over the age of 25 of 50 pence from the current national minimum wage.
The government has set a target of increasing the living wage year on year and to be more than £9.00 per hour from 2020. Please note that this is a target subject to economic growth and the proposed £9.00 per hour will not be introduced in the near future.
The office of budget responsibility predicts that some 60,000 people will lose their jobs as a result of the changes and the additional costs for businesses to employ staff.
The government is attempting to redress this by reducing corporation tax from 20% to 19% in 2017, and a further reduction to 18% in 2020 to help businesses cope with the increased wages. Further to this, small companies will receive assistance in the form of increasing the employment allowance by 50% to £3,000, which reduces the amount of national insurance a business has to pay.
The NLW will affect any pay periods which start on or after 1st April 2016; meaning if your payment period starts on the 15th of every month, you only need to start paying the higher rate from then, not the 1st April.
We would also strongly advise you to review employee information on a monthly basis, as any employee who turns 25 after the NLW has been introduced will be entitled to the higher rate of pay from the first payment period after their birthday.
Employers should also be aware that the NLW is enforceable by law and carries the same penalties for non-compliance as the National Minimum Wage. The fine for both is currently set at the amount equal to the underpayment, it should also be noted that there is a limit of £20,000 per employee. In addition to the fine, you could also face a tribunal claim for the deduction of wages.
Employers who fail to pay the NLW may also be named and shamed by HMRC, resulting in considerable negative publicity for that business.
Please be advised that the 'Living Wage' and the National Living Wage are completely separate with the first being a campaign and not enforceable in court, but whereas the NLW is enforceable because it is a legal requirement.
EL Direct can assess the potential impact of the introduction of the NLW on your business and offer guidance on how to accommodate it through management of employment terms and conditions. We can also provide you with advice and assistance on all employment law related matters.
By Guy Woodcock
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