The National Living wage: are you up to speed?

Louise Connacher, a director in the employment law department at Lupton Fawcett Denison Till.
Louise Connacher, a director in the employment law department at Lupton Fawcett Denison Till.
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Last summer the Chancellor, George Osborne, announced the introduction of a national living wage (NLW) from April 1, 2016.

Payment of the NLW will be compulsory to all workers aged 25 or over, and will be set at £7.20 per hour. With the National Minimum Wage (NMW) for this age group currently set at £6.70 per hour, this represents more than a 7 per cent pay rise for low-paid workers.

Confusingly, the voluntary “living wage” set by the Living Wage Foundation is higher than the NLW, at £8.25 per hour across the UK and £9.40 in London. The living wage is based on the amount that an individual needs to earn to cover the basic costs of living. Over 1,000 employers are accredited to the Living Wage Foundation, having committed to paying the living wage to all employees and subcontractors.

So, what do you need to do to comply? Currently, the NMW is split into different bands depending upon a worker’s age and whether or not the worker is an apprentice. The new NLW is just another, higher, NMW band. This means that all of the rules applying to the NMW will apply to the NLW. For example:

- tips, expenses, benefits and pension contributions cannot be added on to a worker’s basic rate of pay when calculating the NLW

- an employer cannot make deductions from pay for items such as uniforms or tools if those deductions would take workers’ pay below the NLW

- deductions can be made from pay for accommodation, but only to a maximum of £5.35 per day

- workers paid at the apprenticeship rate must be working under a properly drafted Apprenticeship Contract.

Employers should start preparing now to ensure that they are ready for the introduction of the NLW on April 1. The Government is putting an increasing amount of resources into enforcement. HMRC compliance officers can carry out inspections at any time, and can require employers to produce records and attend interviews. If the NMW has not been paid, the employer must repay the arrears of the NMW to the worker, as well as pay a financial penalty to HMRC of 100 per cent of the arrears. The employer will then be “named and shamed” by DBIS. Often, the reputational damage to an organisation of being named and shamed is of more concern than the penalties.

So the message for employers is – prepare yourself for the NLW, and also audit your current payroll to ensure that all workers are being paid at the correct rate, before the HMRC compliance officers come knocking…

For further help or advice, please contact Louise Connacher on 0113 280 2108 or louise.connacher@lf-dt.com