The National Living Wage has been catching headlines since Chancellor George Osborne announced it last summer, but the Government’s target of £9 per hour by 2020 has overshadowed the detail, and many businesses remain unaware of the transitional deadlines and new penalties now in place.
The compulsory National Living Wage (NLW) arrives on 1 April 2016 for eligible workers aged 25 and over, and it’s been set at £7.20 per hour. But the NLW does not replace the current National Minimum Wage, it sits alongside and is a new premium tier solely for those aged over 25. For everyone under the age of 25, the National Minimum Wage continues to apply.
The new NLW is different also from the ‘Living Wage’, which is an hourly rate of pay calculated to cover the basic cost of living in the UK. It’s assessed by the independent action group Living Wage Foundation and most recently has been calculated at £8.25 per hour, or £9.40 per hour in London.
When the NLW arrives on 1st April 2016 all eligible employees – whether permanent workers, agency workers, casual labourers or agricultural workers – who are aged 25 or over must be paid at £7.20 per hour, a pay rise of 50p per hour, whilst other workers will continue to be entitled to the following rates:
- 21-25 years old – £6.70 per hour;
- 18-20 years old – £5.30 per hour;
- Under 18 years old – £3.87 per hour; and
- Apprentices – £3.30 per hour.
Implementing the National Living Wage for eligible over 25’s is not something that should be ignored or delayed, as there are stiff penalties in place. Employers can be fined 200% of the amount owed if arrears are not paid within 14 days and receive fines of up to £20,000 per worker.
It is important to avoid any age-related practices that set out to reduce the number of employees eligible for the higher rate. Any dismissals of older employees, even with less than two years service, could see employers facing an employment tribunal for unfair dismissal and age discrimination. It is the same for recruitment, employers must avoid demonstrating any preferences for younger workers.
The National Living Wage is expected to increase each year, with recommendations for future rises being made by the Low Pay Commission, as the Government continues its objective towards ‘higher pay and higher productivity’ in place of ‘low wage, high welfare’.