HM Insights

The new National Living Wage – time to act for employers

With the start of a new calendar year, that attention of employment lawyers and HR practitioners is drawn towards April, the first of two months in which legislative changes traditionally take place (the other being October). This year will see one particularly important change for employers and employees alike - the introduction of the “national living wage”.

National Living Wage Employers Employees Pay Rise Law

The national living wage will be £7.20 an hour for workers aged 25 and over, and is applicable from 1 April 2016. Not to be confused with the voluntary living wage operated by the living wage foundation, the “national living wage” is rather an extension of the national minimum wage.

The cost of the national living wage for employers

The present minimum wage for workers aged 21 and over is £6.70 per hour and as such the jump will be significant; the hourly rate differential of £0.50 per hour will compound with employers national insurance and pension contribution (where employers are obliged to auto-enrol their workers) taking the increased cost closer to £0.60 per hour. For a full-time employee, this equates to an increased cost of approximately £1000 per annum, to be borne by business.

The dangers of trying to evade the cost

Employers wishing to carry this cost by removing benefits or by not conducting salary reviews for other staff will need to be careful, as possible contractual disputes and employment relations could arise; hidden dangers may even arise with equal pay and discrimination complaints possible. Deliberately recruiting younger members of staff (such as those in the age bracket of 18-20 who are entitled to a much lower rate of pay of £5.30 per hour) will lead to problems further to the Equality Act 2010.

One recent study suggests up to 500,000 employees in Scotland will experience a pay rise and employers across the public, private and third sectors will be affected come April. As with all minimum wage rates, employers will need to be wary of failing to comply; the range of sanctions available against employers includes naming and shaming employers along with penalising employers up to 100% of what the employer owes its employees, up to a maximum of £20,000 per employee.

HMRC’s present national minimum wage amnesty, allowing employers to pay employees any underpayment and declare the same to HMRC using an online disclosure form, will end as of 31 January 2016.

Being prepared for the National Living Wage

Of course the changes brought about are not just about legal compliance. Your HR and payroll departments will need to ensure that the correct staff information is known and retained in relation to birthdate and that payroll has a trigger to convert someone to receive higher wages on turning 25. Being entitled to the higher rate of pay will be important, and all staff experiencing a pay-rise will need to be told in writing of their new rate of pay.

A recent study by the Department for Business, Innovation and Skills suggested less than half of employers had taken the appropriate steps to plan for the new change. With April fast approaching, now is the time to act.

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We can assist by ensuring both that the changes you introduce are legally correct and also by assisting plan out all of the changes required from a practical and administrative perspective.