national living wage

18/02/2016

From tomorrow, 1st April 2016 the National Living Wage will come into effect. This will mean a 50p increase for all workers aged 25 and over who earn the minimum rate. An eligible workers pay will increase to £7.20 per hour, with the stated intention of this rising to £9.00 an hour by 2020.

However the National Minimum Wage will not be replaced; on the contrary a new dimension is added for any worker aged over 25 as follows;

The current rate of National Minimum Wage:

Year 21 & over 18 to 20 Under 18 Apprentice
2015 (current rate) £6.70 £5.30 £3.87 £3.30

The introduction of the National Living Wage will mean:

Year National Living Wage for 25+ 21 to 24 18 to 20 Under 18 Apprentice
From April 2016 £7.20 £6.70 £5.30 £3.87 £3.30

It is notable that some exclusions apply and some individuals are not entitled to the National Minimum Wage, namely the self-employed, volunteers, share fishermen, prisoners, members of the armed forces and company directors. Anyone who is entitled to the National Minimum Wage and fulfils the age criteria will be able to receive the National Living Wage.

Calculating the applicable rates is easy.

To determine if a worker is paid the National Minimum Wage, their average hourly rate should be calculated. This is done by taking the total remuneration earned over the relevant pay reference period and dividing it by the number of hours worked within that pay reference period. The pay reference period is the period used for calculating hourly pay. For instance if the worker is paid monthly then it is one a month.

Not all remuneration earned in the relevant pay reference period counts towards the National Minimum Wage, some payments actually reduce the amount of pay that can be taken into account for the purposes of the National Minimum Wage.

Preparing for the change_

If you are an employer it is vitally important that you are ready for the change. The penalties for non – compliance are as stringent as the penalties concerning the National Minimum Wage. Check who in your organisation is eligible for the pay increase, inform your workers and take the appropriate payroll action.

Unsurprisingly no employee can be dismissed or be subjected to detriment because they qualify for the National Living Wage, and so preparatory work is key.

It’s a criminal offence for employers not to pay someone the National Minimum Wage or to falsify payment records. Non-compliance with the National Living Wage will also become a criminal offence, and in the event of an error, employers who discover they’ve paid a worker below the minimum wage must pay any arrears immediately.

Last year the Department for Business, Innovation and Skills announced a package of measures intended to improve compliance with the National Minimum Wage and the National Living Wage when the latter is introduced in April 2016. Non-compliant employers will face higher fines and could be disqualified from holding company directorships for up to 15 years.

The current penalty for non-payment is 100% of the arrears; the introduction of the National Living Wage will see this penalty doubled. An employer who is not compliant will have to pay 200% of any money owed to the worker up to a maximum of £100. If the employer complies and pays the worker within 14 days, the financial penalty will be reduced by 50%.

This is a change that will have a far reaching impact; the changes required to your business could be complex. Therefore it is vital to seek guidance before taking action, and be confident that your business is fully ready to comply.

If you would like any more information on this or any aspect of Employment Law please contact Nick Phillips on 01782 404706 or nick.phillips@beswicks.com