09 March 2016 #Employment
The National Minimum Wage is currently paid at four different rates depending on the category of worker, however, from 1st April 2016 a fifth rate will be introduced for workers over the age of 25 years, referred to as the National Living Wage.
The National Living Wage of £7.20 has been calculated according to the cost of living in the UK and marks a 50 pence increase from the current adult minimum wage rate of £6.70 per hour. Full time workers who are over the age of 25 years and are currently in receipt of the minimum wage can expect to see a typical increase of £910 per annum (gross). Despite the similarity in name, this National Living Wage is entirely separate to the ‘Living Wage’ set by the Living Wage Foundation. The Living Wage Foundation believe the minimum rates of pay should be £8.25 outside of London and £9.40 within London and as such has criticised the Government for not setting higher rates.
Employers need to ensure that they are prepared for this increase and that from the start of next month all workers entitled to the National Living Wage have their salaries increased accordingly. Further, employers should keep abreast of increases in these rates going forward as the Government has already indicated its plans for the National Living Wage to increase year on year to meet with its targets of workers earning £9 an hour by 2020. Particularly important for employers, a failure to pay (at least) the minimum wage could result in a penalty set at 200% of unpaid wages, subject to a cap of £20,000 per worker.
In light of these higher rates of pay, pension contributions and national insurance contributions will also be likely to rise. Entitlements proportionate to salary such as maternity and paternity pay are likely to be affected as a greater number of employers could be entitled to such payments as a result of meeting the earnings threshold.