The National Living Wage

The National Living Wage

On the 1st April 2016 a compulsory National Living Wage is due to be introduced for all working people aged 25 and over, and will be set at £7.20 per hour. The current National Minimum Wage for those under the age of 25 still apply.

How it is different from the existing rates

There are a number of significant differences between the current National Minimum Wage and the new National Living Wage:
  1. The level is significantly higher than the current adult rate.
  2. It introduces a new age structure in that there is a new rate for workers 25 and over, there is no longer a single rate applicable to all workers aged over 21.
  3. It is on a different calendar to the other rates - changing in April, not in October as the National Minimum Wage does.
  4. The level reflects a different basis to the other National Minimum Wage. At present the current National Minimum Wage is set at the existing rates on the basis that it be affordable to the employer and have no impact on employment levels, etc. The National Living Wage is set with the intention of increasing the pay for workers 25 and over and does not take into account the impact it may have on jobs within the workplace.
  5. The future of the National Living Wage is predetermined to a large extent and the ambitious aim is for this to rise from the starting point of £7.20 and to reach 60 per cent of average earnings by 2020. This rise would be a final objective of over £9 by the year 2020. This is partly dependant on sustained economic growth and the rate of the increases is yet to be determined. Also the exact amount of the National Minimum Wage will be determined by the average earnings in 2020.

Who will be entitled to the National Living Wage?

In General, the people that are entitled to the new National Living Wage are the same as those currently covered by the National Minimum Wage and these include:
  • employees
  • most workers and agency workers
  • casual labourers
  • agricultural workers
  • apprentices who are aged 25 and over

Penalties for failure to comply

With the introduction of the National Living Wage the penalty for non-payment will be 200% of the amount owed, unless the arrears are paid within 14 days.

The maximum fine for non-payment will be £20,000 per worker. However, employers who fail to pay will be banned from being a company director for up to 15 years.

The Low Pay Commission

 The Low Pay Commission (LPC) is an independent body that advises the government about the National Minimum Wage. The Low Pay Commission currently recommends the level of the minimum wage and will recommend any future rises to the National Living Wage rate.
They are responsible for:
  • carrying out research and consultation, and commissioning research projects
  • analysing all relevant data and actively encouraging the Office of National Statistics to establish better estimates of the incidence of low pay
  • carrying out surveys of firms in low-paying sectors
  • Consulting with employers, workers and their representatives and taking written and oral evidence from a wide range of organisations.
  • making fact-finding visits throughout the UK to meet employers, employees and representative organisations
Once the above is carried out then they submit a report to the government every February making recommendations on the future level of the minimum wage, and any related matters.

The Living Wage

The Living Wage is different from the new National Living Wage, which is an hourly rate of pay and updated annually. The Living Wage is set independently by the Living Wage Foundation and is calculated according to the basic cost of living in the UK. Employers choose to pay the Living Wage on a voluntary basis.

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