August 27, 2015

The National Living Wage – what does it mean for employers?

National Living Wage

The current position

The choice of terminology appears to be an acknowledgement of the favourable publicity generated by the Living Wage Foundation’s Living Wage campaign. Several high profile employers including IKEA and Aviva have adopted this voluntary wage. At the moment the Living Wage, calculated as the minimum level of pay to attain a basic but reasonable standard of living, is £7.85 an hour, and £9.15 an hour in London.

The new National Living Wage

From April 2016, there will be a compulsory National Living Wage which must be paid to all workers – and not just employees – aged 25 and above. Initially, it will be set at £7.20 an hour, with the aim of it increasing to more than £9.00 an hour by 2020.

How is the National Living Wage different to the National Minimum Wage?

Technically the National Minimum Wage will remain in place, and the compulsory National Living Wage will be a top-up for workers aged 25 and over. National Minimum Wage rates go up every October. From October 2015, the new adult rate (for workers aged 21 and over) will be £6.70. The National Living Wage will effectively insert a new minimum wage band for those aged 25 or over. The fact that it is compulsory has led some to say that this is simply a rebranded minimum wage.

So how much will the under 25s get?

The lowest amount that employees under 25 should receive will be the National Minimum Wage for their appropriate age.

What does this change mean for employers?

The increase in wage costs is likely to cause concern for lots of employers, particularly those with a sizeable workforce earning close to the minimum wage. Businesses have expressed concerns that the increase in the cost of wages could result in the loss of 60,000 jobs.

However the same was said when the National Minimum Wage was introduced. While jobs were lost at this time, the evidence was that increasing minimum rates of pay can improve staff retention, increase productivity and reduce sickness absence. These indirect benefits may outweigh the costs for businesses.

The National Living Wage is still in its infancy and we shall provide further updates when we know more.

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