The National Living Wage: Are you prepared?

There are particular details that you should be aware of in order to be fully prepared for when the changes come into effect in April 2016. Here’s everything you need to know as an employer, and the effects it may have on your business.

What is it?

The National Living Wage has been introduced by the government as part of an overall strategy to move towards a higher wage, lower tax and lower welfare society, which the government hopes will build a more productive Britain and give low paid workers the security of well-paid work, as well as the incentive to work by ensuring they benefit from as generous a wage as possible.

The specifics:

When to start paying the new rate

The new National Living Wage law comes in to effect on the 1^st of April, but it should be noted that this does not mean that all employees over 25 will get a pay rise from that day. The law on minimum wage states that the minimum rate must be paid from the pay reference period, so if your pay reference period runs from the 25^th of each month (for example), employees who are paid monthly will start getting paid the National Living Wage from the 25^th of April.

The dangers of age discrimination

Considering changing your recruitment strategy and only hiring under 25’s in the future, in order to save money? This is a highly risky move as the law strictly prevents candidates from being rejected for a job due to their age.

And the same goes if you’re considering dismissing someone once they have reached the legal age of 25 for the National Living Wage, you would be liable for age discrimination and unfair dismissal.

Will you need to increase other employees’ wages to maintain pay scales?

The National Living Wage may lead to some of your employees complaining that the new pay rates don’t reflect the value of their skillsets, since you may have low-skilled workers on £7.20 and higher skilled workers who were already near that pay rate due to having more skills. 

There’s no law that states you have to make changes to your other employees already earning above the National Living Wage, unless of course it is stated in your employees contracts that their pay is scaled in relation to others.

Apprentice pay

Currently there is a special pay rate that applies to apprentices, this will continue even with the introduction of the National Living Wage. Apprentices who are under 19 (or over, but in their first year of apprenticeship) are entitled to the apprenticeship rate of £3.30 per hour (the rate is reviewed every October). Apprentices not in this category (for example aged 19 or over and not in the first year of apprenticeship) will have to be paid the minimum rate appropriate for their age. So any apprentice who is 25 or over and in the first year of their apprenticeship will only be entitled to £3.30 per hour. After their first year, they will need to be paid the National Living Wage.

How do I prepare?

It’s vital that you as an employer are as prepared as possible for the new law which comes into place on 1 April, 2016. You will need to follow these steps:

1)      Ensure you know who’s eligible in your business, find out on GOV. UK’s employment status page.

2)      Take the appropriate payroll action. Find useful guidance in HMRC’s tutorials.

3)      Inform your staff about their new pay rate.

4)      Ensure your staff under 25 are earning at least the correct rate of National Minimum Wage.

You can find out everything you need to know about the new National Living Wage, including the new rates of pay, on the employers’ National Minimum Wage page and more information can be found on the Advisory, Conciliation and Arbitration Service (Acas) page.

What if I don’t pay the new rate?

The National Living Wage will be enforced in the same way as the minimum wage is, meaning potential fines for employers who fail to pay it. Employers who do not pay their workers the minimum wage could face a penalty of up to £20,000 as part of government’s crackdown on employers who break the law.

How will my business be affected?

The bad:

The negative effects of implementing a higher minimum wage across the UK is clear to see, businesses will have increased overheads meaning businesses will have to find ways of cutting costs. B&Q, Tesco and Next are all reducing their costs ahead of the National Living Wage being implemented, according to the Daily Mail.

Tesco, who already pay above the minimum wage, have decided to increase pay to £7.62 which is still above the National Living Wage, but will cut costs with reductions to holiday and night-time bonuses, and have reportedly put plans in place to cut as many as one in six jobs. B&Q will also offset the costs on the National Living Wage increase by losing double pay on Sundays and bank holidays. Next meanwhile have decided to pass the increased costs onto consumers to account for the estimated £27 million cost of increasing wages.

The good:

The Living Wage foundation, which oversees the calculation of the Living Wage rates in London and the UK, campaigns for a UK Living wage of £8.25 per hour (as calculated by the Centre for Research in Social Policy). An independent study which examined the benefits to employers of implementing a Living Wage policy (different to the National Living Wage) in London found that over 80% of employers believe that the Living Wage had increased the quality of the work of their staff, while absenteeism was down by about 25%.

Two thirds of employers also reported positive effect on recruitment and employee retention within their business. 70% of employers also felt that implementing the Living Wage by their own accord had increased consumer awareness of their business’s commitment to be an ethical employer.

After implementing the Living Wage PwC found turnover of contractors fell from 4% to 1%.

Do you think the National Living Wage will have a positive or negative effect on businesses and entrepreneurs in the UK? What impact will the changes have on your business?

Drop us an email at Services@JVPGroup.co.uk or give us a call on 0844 967 4467.

Published by:                    Sion Jones, JVP Group                   Published; 29.03.16

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