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National Living Wage - A Guide for Employers

Feb 11th, 2016

Kate Hindmarch, Consultant Solicitor

The National Living Wage comes into effect on 1st April 2016. 

It was announced in the 2015 Conservative Budget and is designed to increase the pay of certain employees. The aim of the National Living Wage is that it should be equivalent to 60% of median earning by 2020.

Q. Does the National Living Wage apply to my business? 

A. It is compulsory for all employers regardless of size.

Q. How much is the National Living Wage?

A. It will start at £7.20 per hour and be increased to £9 per hour by 2020. This is an increase from the current National Minimum Wage which is currently £6.70 per hour.

An employee on the current National Minimum Wage working 37 hours a week will currently be paid an annual salary of £12,890.90. If that employee was eligible for the National Living Wage their annual salary would increase to £13,852.80 when the National Living Wage is introduced and this will increase to £17,316 by 2020.

Q. I thought that Living Wage was higher than that?

A. This is where things get slightly confusing. The National Living Wage should not be confused with the Living Wage.

The Living Wage, is an amount set by the Living Wage Foundation and is currently set at £8.25 for everywhere outside of London and £9.40 within London.

The Living Wage is calculated on cost of living expenses and is entirely voluntary, unlike the National Living Wage. 

Q. Do I have to pay my employees the National Living Wage now?

A. No. The new rate will come into effect from April 2016.

Q. Do I have to pay all my employees the new rate?

A. Again no. The National Living Wage only applies to employees over the age of 25. Any employee under the age of 25 will still be covered by the National Minimum Wage but the National Living Wage will not apply to them.

Q. How is this likely to affect my business?

A. The most obvious change will be the increase in salary to all the affected members of staff. Industries with a large proportion of staff currently on the National Minimum Wage are likely to feel the biggest effect.

However it may also affect the salary of all staff in your organisation. With the lowest paid members of your organisation receiving what will effectively be an 8% pay rise you may feel under pressure from those employees earning just over the National Living Wage to increase their salaries as well, to reflect their seniority and length of service.

The other big change is that it will make the hiring of staff under the age of 25 much more attractive as they will only need to be paid at the lower National Minimum Wage levels. Employers will therefore need to be careful they are not guilty of age discrimination when making staffing and recruitment decisions in the future.

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Kate Hindmarch

Consultant Solicitor

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