The new National Minimum Wage and the new National Living Wage – The facts

The new National Minimum Wage – 1st October 2015

 

depositphotos_11300920-Bags-of-money-with-Pounds-SterlingOn Thursday 1 October 2015 the adult rate of the National Minimum Wage (NMW) increased by 20p from £6.50 to £6.70 per hour (as recommended by the Low Pay Commission).

The Government rejected the LPC’s recommendation for the apprentice rate and the new apprenticeship rate will only now increase by 57p to £3.30. But this is still reported as the largest ever increase in the National Minimum Wage for apprentices.

So from 1 October 2015 here are the new rates:

  • Adult rate is £6.70 per hour – an increase of 20p per hour
  • 18 to 20 is £5.30 per hour – an increase of 17p per hour
  • 16 to 17 is £3.87 – an increase of 8p per hour
  • the apprentice rate is £3.30 per hour – an increase of 57p per hour
  • the accommodation offset increased to £5.35 per day – an increase of 27p per day.

Overall this has been reported as the largest ‘real term’ increase to the NMW since 2007 and it is reported that more than 1.4 million of UK’s workers will benefit.

The New Living Wage – April 2016

Law update

Law update

You may have heard on the news about the launch of the Government’s new National Living Wage (NLW). It will be a premium that will be added to the existing National Minimum Wage (NMW) for workers aged 25 and over.

It is due to come into force in April 2016 and has been set at 50p. This will deliver a combined new NLW of £7.20 per hour for workers who are over 25. It has been reported that this is intended to rise to at least £9 per hour by 2020.

Previously you may have heard about the NLW (promoted by the Living Wage Foundation) as being optional for employers to pay and become a Living Wage Employer. You may have taken this up. However it is important to stress that this is a separate Government initiative to pay a NLW for the over 25s and it is not discretionary, but compulsory, for all UK employers to pay from April 2016.

You should also know that the Government has announced a package of measures from April 2016 to ensure there is full compliance with the new NLW. Any employer who fails to pay the NLW would face a penalty of up to 200% of the amount of arrears (i.e. the difference between the NLW and the amount the employer was actually paying for each worker) subject to an overall cap of £20,000. Company directors can also face potential disqualification from holding a company directorship for up to 15 years.

When determining whether your employees are paid the NLW it is important to know that some pay will not count towards the NLW. For instance overtime and shift work enhancements cannot be included in any NLW calculations. However it seems that bonuses, commission and other incentive payments that are based on performance can be.

Confusingly the NLW promoted by the Living Wage Foundation will only include guaranteed bonus payments (performance-based bonuses are excluded) as part of the NLW. But as I said this is a separate discretionary scheme.

Impact on businesses

It has been reported by PWC that the NLW will cost employers an extra £11m by 2020. And research has indicated that employers state that they will have to pay out an extra £1.6m in wages in the next year. But of course, this is only the start as the Government intends to increase the NLW to £9.00 an hour by 2020. The survey also indicated that nearly a quarter of employers surveyed pay less than £7.20 – and of course, any organisation currently paying below the NLW to a large number of their eligible employees will be the hardest hit.

When combined with the new Auto enrolment contributions now starting to come into force for even the smallest employer, For more on this click here Auto Enrolment for SMEs | HR Support for Business this will further increase employee costs and many employers will need to undertake an organisational salary review.

 

For all employers it has never been so vital to ensure that they get a good return on their investment in their workforce. For employers it is vital to ensure that all their workers individually and collectively add value to the business by increasing their performance and capability aligned to deliver key business objectives.

HR Support BannerA good performance management system can help you achieve this.

If you would like to discuss how I could help you align performance and capability to better achieve core business objectives, please contact me on carole@hrsfb.co.uk or 01295 788 579 / 07899 425 916 or click here Contact us | HR Support for Business

Or please feel free to contact me if you just have questions about the NMW, NLW or need any HR help or advice within your business.

 

 

 

About Carole Thomson

Following 16 years implementing HR solutions for businesses I founded HR Support for Business. Designed to be a one stop trusted HR Resource centre for small and medium businesses. Working locally or virtually we can be your HR team member when you need us. Or give SMEs access to tried and trusted HR contracts, policies and documentation. A self service HR resource to make it easier for SMEs to manage their people and save time and money in development and management time.

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