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National living wage: your questions answered

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As the National Living Wage is due to come into force on 01 April 2016, we have set out below our most commonly asked questions and their respective answers to help you and your organisation prepare for the changes.

What is the National Living Wage?

The National Living Wage will set the minimum wage for those workers aged 25 and over at £7.20 per hour (it is estimated that this will increase to £9.00 per hour by the year 2020). This is a 50p per hour increase in the National Minimum Wage of £6.70 per hour (which will continue to apply to those aged between 21 and 24).

This is part of the Government’s strategy to boost living standards for those aged 25 and over. Only time will tell if the age limit needs to be adjusted to reflect the needs and demands of those in their 20s, or if it is subject to an age discrimination claim.

Who will the National Living Wage apply to?

The National Living Wage will apply to all workers aged 25 or over, except for those in their first year of an apprenticeship. It is estimated that the changes will affect over one million workers.

What will the National Minimum Wage rates be from 1 April 2016?

We have set out below a table showing the five National Minimum Wage categories as from 01 April 2016:

Category of Worker Rate of pay (hourly)
Apprenticeship rate (under 19 years of age or those in their first year of apprenticeship) £3.30
Under 18 but above the compulsory school age £3.87
Age 18-20 £5.30
Age 21-24 £6.70
Age 25 and over £7.20

How could this affect your business?

Following the introduction of the National Living Wage, it is possible that an organisation could find itself in a situation where a 24-year-old more senior member of staff is on a lesser rate of pay than a 25-year-old with less experience and/or qualifications. This is due to the agreed National Joint Council pay scales which do not currently incorporate the new requirements of the NLW.

The current National Joint Council scale point 8 pays £7.19 per hour which is 1p under the National Living Wage. UNISON, GMB and Unite have already raised this as an issue. Their submission on this issue can be found on the Unison website.

The Local Government Association has issued a useful circular setting out their view on the current position, which can be found on the Local Government Association website.

For the moment all we can do is wait and see if there is an agreement reached to amend the National Joint Council pay scale in line with the National Living Wage. However if an agreement cannot be reached by 01 April 2016, employers will need to take steps to ensure that they are paying the appropriate minimum wage to their staff.

What happens if the National Living Wage is not paid?

An organisation could face severe civil and criminal penalties if it does not comply with the National Living Wage rules.

These could include:

  • On the spot inspections carried out by HMRC officers, which can include requiring organisations to produce records to prove that the National Living Wage is being paid appropriately.
  • Facing a fine/penalty of up to £20,000 per underpaid employee.
  • Being “named and shamed” as an employer who fails to adhere to the National Living Wage.
  • Receiving a formal “notice of underpayment” from a HRMC compliance officer, requiring payment of the National Living Wage within 28 days of the notice.
  • A formal complaint being made by an underpaid employee to HMRC or the Pay and Work Rights helpline.
  • An Employment Tribunal claim for unlawful deduction of wages claim (made by the underpaid employee).
  • In the most serious cases, criminal prosecution by the Crown Prosecution Service.

The potential ramifications as set out above are best avoided by ensuring that the National Living Wage is paid appropriately to staff that are entitled to it.

Start planning now

It is estimated that salary budgets will increase by 3.4% as a result of this change, so organisations should start planning for the introduction of the National Living Wage and its impact on budgets now. If your organisation is unable to accommodate this in the long term you may wish to consider making changes to staffing structures or terms and conditions of employment in order to set off a higher salary bill.

If you would like any further advice on any aspect of employment law, please contact our Employment & HR team on 01332 226 149 for a confidential chat.

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