A new statutory National Living Wage (NLW) means that workers over the age of 25 now benefit from an increase in the National Minimum Wage (NMW) of 50p per hour, effective since 1 April 2016.
The changes, introduced by the National Minimum Wage (Amendment) Regulations 2016, mean that adult workers over the age of 25 are entitled to a minimum hourly rate of £7.20 (up from £6.70). Workers under the age of 25 are not affected by the introduction of the NLW, such workers remain entitled to the NMW at a rate of £6.70.
The new NLW is part of the Government’s plan to move away from “a low wage, high tax, high welfare society towards more of a “higher wage, lower tax, lower welfare society”. The Government’s aim is to increase the NLW to over £9 by 2020.
This is a significant change that will give a direct boost in earnings for around 2.7 million low wage workers in the UK. There will undoubtedly be a large increase in costs for employers. From April 2016 the Government has also introduced measures to help cut costs for businesses such as the National Insurance Contributions Employment Allowance being increased as well as a further reduction in the rate of corporation tax.
The new statutory minimum wage rates from 1 April 2016 are :-
- age 25+ : £7.20 per hour (the National Living Wage)
- 21-25 : £6.70 per hour
- 18-21 : £5.30 per hour
- <18 : £3.87 per hour
- apprentices : £3.30 per hour
Pam Sidhu comments: “Given the significant increase in costs, it is likely that businesses may look to make cost adjustments through other channels such as passing the cost to customers, reducing overtime opportunities, improving efficiency or even reducing headcount. Another potential tactic might be to increase recruitment of younger workers, (i.e. those aged under 25 who do not qualify for the NLW). This would be a risky approach given age discrimination law. Employers should check whether they already meet the NLW requirements, for example payments such as bonus or commission based on performance count towards calculation of the NLW rate.”
Employers should be prepared to deal with knock on effects of increased wages, such as increased pension contributions for workers caught by automatic enrolment, with more workers becoming eligible due to the increase in their salary. More staff may also become eligible for statutory payments such as maternity and paternity pay as a result of exceeding the relevant earnings threshold.