InsightsInsight - Employment & HR - POSTED: April 1 2016
National Living Wage comes into effect today are you compliant?
Is the wages increase sustainable for your business?
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What is the National Living Wage?
The National Living Wage applies to workers aged 25 and over. From 1st April 2016, those eligible must receive pay of at least £7.20 per hour. For those aged under 25 the National Minimum Wage rates will continue to apply but these hourly rates will be increased from 1st October so that those aged 21+ will receive £6.95, 18-20 £5.55, 16-17 £4.00 and apprentices (under 19 and in their first year) £3.40.
Guidance on who is and who is not entitled to the National Minimum and National Living Wage can be found at: www.gov.uk/national-minimum-wage-rates
How will this affect my business?
Whilst this pay increase has been welcomed by many workers, many businesses, particularly smaller businesses are concerned about the impact that this may have on them. It is suggested that key sectors such as hospitality, retail and care will be hit the hardest by the new NLW.
For those 25 and over, this increase represents a 50p pay increase compared with the previously applicable rate of £6.70. Further increases will be applied each year with a proposed rate of £9.00 being reached by 2020.
There are significant penalties for non-compliance, with fines of up to £20,000 per underpaid employee and potential disqualification for directors for up to 15 years.
We are aware that many businesses have been reviewing their pay structures to ensure compliance with the new NLW. For some, this has involved little or no change whilst for others, it has had a greater impact requiring the need for reorganisation and looking at different business models, including reducing hours and benefits for workers. You may, therefore, question the benefits this change is bringing as whilst some workers may be better off others may be losing their jobs to fund the costs associated with this change.
Bear in mind that an employee is automatically unfairly dismissed if the reason (or principal reason) for dismissal is that they qualified (or will or might qualify) for the National Minimum Wage or for a particular rate of National Minimum Wage, this is likely to apply to NLW. This would mean that the usual requirement to have two years’ continuous service to bring a claim for unfair dismissal would not apply. Therefore, if you were considering dismissals, possibly of those with under two years’ service on the basis they would not be able to bring an unfair dismissal claim you may wish to think twice as they are likely to be able to bring a claim in these circumstances.
What should we be doing to ensure compliance?
- Know the correct rate of pay – £7.20 per hour for staff aged 25 and over;
- Find out which workers are eligible and ensure that they are being paid at the correct rate – remember not all payments made to workers count for NLW purposes;
- Ensure that company payroll is up to date and if appropriate, relevant flags are in place to notify you of any possible breaches;
- Check contracts of employment; and
- Look ahead, the rate is set to rise, you may be compliant now but will you be in the future?
Our teams at Brachers and Kent HR can assist you in review and advice around compliance with the NLW. If you require assistance please contact Louise Brenlund on 01622 776405 or email firstname.lastname@example.org
This content is correct at time of publication
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