What is the National Living Wage?
The new National Living Wage (NLW) was introduced on 1st April 2016. This set the pay rate for all workers over 25 at £7.20 per hour. By 2020 this will increase to £9 per hour.
“The government wants to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.”
The NLW should not be confused with the National Minimum Wage (NMW). NLW replaced the NMW but for over 25 year olds only. The NMW still applies for anyone between 21 and 24 years old, the highest rate of NMW is currently £6.70 per hour.
The impact on employers
The introduction of NLW could lead to your overall salary bill increasing. Employers are encouraged to be prepared for the change and to start establishing internal systems to help prompt them of any changes.
Some of the repercussions of not paying NLW include being reported to HMRC and bad publicity for your organisation. HMRC has the authority to order companies to pay any arrears in salary and they can also set penalty fines. The penalties for non-payment are 200% of arrears owed, which will be halved if paid within 14 days. The maximum penalty is £20,000 and that’s per worker! These penalties apply to both NLW and NMW. Employers could face claims of deduction of wages if they do not manage pay correctly. Workers can go to an employment tribunal directly. If they have been dismissed due to a disagreement over minimum pay then they can potentially claim unfair dismissal. In the period 1 April 2014 to 31 March 2015, the highest award for unfair dismissal was £238,216!
In addition to any penalties and fines, there is likely to be poor publicity for a company too. HMRC is not shy about ‘naming and shaming’ companies who have failed to pay staff fairly. In October 2015, HMRC identified 113 employers who did not pay their staff fairly. Named in this exercise were well known companies such as Monsoon Accessorise Ltd. and Subway.
How can our HR Consultancy team help you?
Our team is happy to assist you in preparing for the change. We can help you understand any terms and requirements which relate to NLW e.g. pay reference periods and knowing what should be included in wage calculations. Minimum wage calculations can differ for different types of workers.
We can reduce any associated administrative burden for you; for example; producing salary change letters for you. Numerous clients currently outsource their payroll function to us and we could do this for you. We would be responsible for monitoring pay rates for your workforce and making any necessary adjustments; freeing up more of your time.
If you are concerned about whether your salaries are competitive within your particular market then we are able to conduct market research and salary benchmarking exercises on your behalf. This could prevent you from losing key personnel to your competitors.
If you want to find more about NLW and how it could affect your company then get in touch with a member of our HR Consultancy team or please send us an email.