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Employers Must Now Pay the National Living Wage

Employers Must Now Pay the National Living Wage

The new mandatory National Living Wage (NLW) came into force on 1 April 2016, requiring employers to pay workers aged 25 and over at least £7.20 an hour. It is expected to give 1.3m workers an immediate pay rise. For everyone under the age of 25, the National Minimum Wage continues to apply, for example; Workers aged 21 to 24 will continue to be entitled to the National Minimum Wage of £6.70 an hour.

The intention is for the NLW to rise to more than £9 an hour by 2020.

The Living Wage Foundation, which inspired the idea but does not set the level of the NLW, welcomed its introduction, but urged businesses to "aim higher" and pay more than the statutory minimum.

The Resolution Foundation thinktank says 6m, or 23% of all employees, are set to benefit by 2020.

The NLW is not an alternative to the National Minimum Wage; the two sit alongside one another. The NLW is a new, premium tier of wage to be paid solely to those 25 and over, whilst the National Minimum Wage continues to be applied to all workers under the age of 25 at the following tiers:

  • 21–25 years old: £6.70 per hour
  • 18–20 years old: £5.30 per hour
  • Under 18 years old: £3.87 per hour
  • Apprentices: £3.30 per hour

The law on minimum wages operates around the pay reference period system – so although the new law came into effect on April 1st, workers over the age of 25 are entitled to receive the minimum rate from the start of the relevant pay reference period. The same principle will apply for all workers who reach the age of 25. The NLW will not need to be paid from their birthday; it will need to be paid from the date the new pay reference period starts after their 25th birthday.

Workers aged 25 and over who are currently earning the top band of the minimum wage will now receive almost an extra £1,000 each year. Some employers may be inclined to take on only people below the age of 25 – but employers must keep in mind that the law prevents candidates from being refused a job because of their age. Dismissal of a worker as they approach their 25th birthday where the principal reason was to avoid having to pay the living wage would be automatic unfair dismissal and age discrimination.

The introduction of the NLW may disrupt existing pay scales, and an employer’s adoption of the minimum wage could mean the closing of skill-related buffers between pay rates. In such circumstances, workers on higher pay grades could complain that the pay rates no longer represent the difference in value of their respective skillsets. However, unless there is a contractual right for these skilled workers to be paid at a rate which is calculated by reference to other rates within the company, there is no requirement for an employer to increase any other pay rate. The National Living Wage is a legal requirement and not related to skills.

Within the existing minimum wage structure, there is a special rate that applies to apprentices, which will continue to be maintained regardless of the introduction of the NLW. This means that not all employees aged 25 and over will be caught by the new rate. Any apprentice who is 25 or over and still within the first year of their apprenticeship will only be entitled to £3.30 per hour. After their first year, they will need to be paid the NLW.

Compliance is crucial

Employers who fail to pay workers at least the minimum wage risk being publicly named and shamed, may face a financial penalty and possibly even prosecution.

The government has announced that the enforcement budget for the NLW will be increased in 2016 and 2017. Employers who fail to pay staff at least the minimum wage they are legally entitled to will have to pay double the current penalties.

The calculation of penalties on those who do not comply will rise from 100% of arrears to 200%. This will be halved if employers pay within 14 days. The overall maximum penalty of £20,000 per worker remains unchanged.

Guidance for employers

At IBB Solicitors, we take a proactive approach to workplace problems, helping employers find the best possible outcome for their employment issues. We can help advise on policy reviews and provide expert training for your HR team. Our specialist employment lawyers place heavy emphasis on continuing personal training and development, to ensure that they always present you with the most up-to-date legal and practical advice available.

Find out how we can help you settle disputes and stay on the right side of the UK’s ever-changing employment law by calling us on 01895 207892, or email your details to employment@ibblaw.co.uk