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Introduction of the National Living Wage

21st April 2016

On the 1st April 2016 the National Living Wage came into effect. This applies to all workers aged 25 years and over. Since the 1st April 2016 all such workers have been entitled to be paid a minimum of £7.20 per hour.

This marks an increase of 50p per hour on the National Minimum Wage for the same age group.

However, the National Minimum Wage continues to exist, and applies to workers under the age of 25 years. Therefore, in reality, the National Living Wage is effectively a higher rate of the minimum wage for workers age 25 and over. So, for workers aged 21 to 24 the minimum wage is £6.70 per hour. For those aged 18 to 20 the current rate is £5.30 per hour; and for those aged 16 and 17 the current rate is £3.87 per hour. The apprentice rate is at £3.30 per hour.

The Government has stated that it is hoped that the rate of the National Living Wage will increase to reach 60% of national median earnings by 2020, ie a current figure of £9 per hour.

It is important to note that the National Living Wage is NOT the same as the "Living Wage" promoted by the Living Wage Foundation. The Foundation has established figures that they believe represent the actual basic amounts that would provide a basic standard of living. Currently they calculate that sum as £8.25 per hour (with a higher rate in London of £9.40 per hour).

The Low Pay Commission recommended the rate of the National Living Wage, and will presumably recommend any changes in the rate in the future.

The introduction of the National Living Wage has been reported to have a direct impact on 1.3 million workers in the UK (see report at -accessed on 20th April 2016), who are said to benefit from an immediate rise in their hourly rate of pay.

However, the story is not all good for workers. The OBR (Office of Budget Responsibility) has warned that 60,000 jobs may be lost as a result of the introduction of the National Living Wage, and they also estimate that it will lead to the reduction in hours of work for many employers (as their employers will no longer be able to afford to pay for the number of hours that the workers previously worked at the lower rate of pay).

The Living Wage Foundation has called for the rate to be paid to workers under 25 years old too.

It is also quite possible to see workplace friction and tension being caused as a result of staff aged under 25 doing the same work as older colleagues but receiving less pay for that same work.

The CBI has described the introduction of the National Living Wage as a "gamble", and has expressed the concern that small businesses will face having to pay a higher basic hourly rate to staff.

Some companies and businesses have already made steps to reduce other benefits that they have previously provided to their staff. For example Caffe Nero has written to its staff telling them that the national living wage will have a "significant financial impact on its business" (see report at accessed on 20th April 2016). At Caffe Nero the staff are losing the benefit of receiving a free lunch. The business employs roughly 4,500 people, who have therefore been directly affected by this change. In addition DIY chain B&Q, Tesco, and the John Lewis Partnership have also recently reduced some of their staff perks, even though most have said that this has not been related to the introduction of the national living wage.

It is difficult to see with the timing of such changes that these moves are unrelated to the increase in the minimum pay introduced with the national living wage.

Penalties for the failure to pay the national living wage have been doubled, from 100% of the money owed to 200%, to a maximum of £20,000 per worker. In addition any employer found guilty of failing to pay the national minimum wage can also be disqualified as a company director for up to 15 years. There are therefore significant risks faced by employers trying to avoid paying the new minimum rate.

If you are affected by any of the issues raised in this article or need any help over these matters do not hesitate to contact us at Hallett Employment Law Services Ltd.   

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