From 1st April, 2016 all employers will need to comply with the new National Minimum Wage regulations.
To help you understand exactly what the National Living Wage is, and what you need to do to comply with the new legislation, here’s a guide to the National Living Wage for small business owners;
This article was published in 2016. For the latest National Living Wage / National Minimum Wage rates, click here.
What is the National Living Wage?
Traditionally, the National Living Wage was calculated based on the amount an individual needs to earn in order to cover the basic costs of living. The amount was used as an informal benchmark but was not a legally enforceable minimum level of pay.
The introduction of the new National Living Wage is one of the steps the government is taking to help to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.
What are the changes to the National Living Wage from 1 April 2016?
From 1st April 2016 the national living wage will become law under National Minimum Wage (Amendment) Regulations 2016.
The introduction of the new National Living Wage for workers aged 25 and over, essentially enhances the National Minimum Wage Rates.
The new compulsory national living wage will increase the hourly rate for workers over the age of 25 (but not in the first year of an apprenticeship) by £0.50 to £7.20 per hour.
Will the National Minimum Wage still apply?
The National Minimum Wage rates will continue to apply for those under the age of 25:
- Standard Adult Rate – (For Workers aged 21-24) £6.70/hour
- Development Rate – (For workers aged 18-20) £5.30/hour
- Young Workers Rate – (For workers aged 16-17) £3.87/hour
- Apprenticeship Rate – £3.30/hour
How will it affect me?
As an employer you will need to ensure that you are paying qualifying employees the National Living Wage as of 1st April as it will be as strongly enforced as the current minimum wage.
What can I do in order to prepare for the changes?
You should check now who is eligible in your organisation as this will only apply to employees over the age of 25. You should then take the appropriate payroll action and let your staff know about their new pay rate.
It is also important to check that your remaining staff who are under 25 years of age are earning at least the correct national minimum wage.
How will the National Living Wage impact employees?
Over a million workers in the UK aged 25 and over are set to directly benefit from the wage increase. That’s an increase of £910 per annum in earnings for a full-time worker on the current National Minimum Wage.
This will be the largest annual increase in a minimum wage rate across any G7 country since 2009 in cash and real terms.
What are the consequences of failing to pay the National Living Wage?
From April 2016 HMRC will have responsibility for enforcing the new National Living Wage as well as the National Minimum Wage and will take firm action where an employer fails to pay the correct wage.
HMRC’s compliance teams will be responsible for investigating complaints from workers and third parties that the living wage has not been paid; inspecting employers’ records to check that they meet their obligation to pay the living wage; helping employers to understand their obligations under legislation and securing pay arrears for workers.
What are the government’s plans for the future of the National Living Wage?
The government is committed to increasing the National Living Wage annually with plans to further increase the new wage to £9 per an hour by 2020. This rise will effectively require 6% year-on-year increases.
How will the National Living Wage affect businesses
The introduction of the National Living Wage is most likely to have a greater impact in the retail, hospitality and healthcare sectors.
Recent surveys revealed that most employers would try to recoup the increase through enhanced productivity and a reduction in costs.
This guide has been written for ByteStart by Minal Backhouse, a solicitor specialising in Employment Law. Minal now heads the legal team at Backhouse Solicitors and has done so since 2005, offering her clients the best possible expertise, service and value for money.
Last updated - 1st April, 2016