The National Living Wage: Are you prepared?
29th March 2016
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 1st 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 25th
of each month (for example), employees who are paid monthly will start getting
paid the National Living Wage from the 25th 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