The National Living Wage: What's it all about?

The idea behind the National Living Wage is to provide over 25 year olds with a wage that is high enough for workers to have a ‘normal standard of living’.

That means being able to afford everyday things like food, transport and paying bills.

But in the UK we already have a National Minimum Wage – so isn’t it the same principle?

The short answer is YES – and for the over 25s it will effectively replace the National Minimum Wage which is currently £6.50 per hour, rising to £6.70 in October 2015.

The National Living Wage will take effect from April 2016 and will start at £7.20 per hour, with a planned rise to £9.00 per hour by 2020.

So if you are over 25 and currently in receipt of National Minimum Wage, you’ll get 70 pence an hour more than the current rate and 50 pence an hour compared with the planned October 2015 increase.

It is expected that the National Living Wage will boost the wages of six million people.

So who is paying for this? Well, the then Chancellor George Osbourne stated that by reducing other overheads this will balance the books. So Corporation Tax will be cut by 2 per cent to 18 per cent, but as a business you have to generate profit to pay Corporation Tax. Further relief for smaller employers will come in the form of being able to reduce the amount of National Insurance contributions by up to 50 per cent.

So if you are over 25 and currently in receipt of National Minimum wage, the future is bright – or is it?

Many business groups have already warned that the changes will affect them badly, especially rural businesses. The Daily Telegraph has reported that The Country Landowners Association, which represents rural businesses, has raised significant concerns and its President, Henry Robinson, said “Farmers and other rural businesses are presented with significant inflation in their wage costs and the cut in Corporation Tax that is supposed to pay for it will not benefit them”.  

Further concerns have been expressed by Justin King, former Chief Executive of Sainsbury’s, who stated the National Living Wage would “destroy jobs”, whilst the UK Homecare Association has stated that unless there was extra help for the care sector, the introduction of the National Living Wage would leave services “unviable”.

Mr George Osbourne, however, predicted that 1.1 million jobs would have been created as a result of the Budget overall, which would significantly outweigh the losses.  

So with the impending introduction of the National Living Wage, linked with Pension changes and auto enrolment, it is predicted that many businesses and SMEs will face further financial pressures. It could also mean that employers will “inadvertently” discriminate against prospective employees and look to recruit under 25 year olds to avoid paying the National Living Wage.

Employers who do not pay workers the National Minimum Wage and the National Living Wage will face tougher penalties under plans outlined by the Government. These include doubling penalties for non-payment and disqualifying employers from being a company director for up to 15 years.

Employers are therefore advised to act now, and to budget for the increase.

We would suggest this is a good opportunity to assess your current workforce,  and if you have employees who are under performing, consider putting into place performance management schedules now, so as to ensure all employees are performing at their optimum level come the increase in April 2016. Companies may also have to look at reducing roles or hours and how to increase productivity to meet the potential increase to your wages bill.

Our Employment team can provide full advice and assistance on how to get the best from your workforce whilst ensuring compliance with Employment Legislation for more information  please contact our Employment team today.