National living wage: the pay minefield continues

National living wage: the pay minefield continues

Published:

Author: Michael Briggs

Applies to: UK wide

George Osborne has announced a new compulsory National Living Wage of £9 per hour will be introduced to the private and public sector by 2020. Where does that now leave employers regarding pay?

Background

In March we reported on the introduction of the National Minimum Wage Regulations 2015 and associated matters in the area of pay, including the Living Wage (as promoted by the Living Wage Foundation) and the concept of 'fair pay'.

On Wednesday, 8 July 2015, George Osborne announced - within the first Conservative led Budget for 19 years - the introduction of a National Living Wage (NLW) which will come into effect in April 2016 and will eventually increase to £9 per hour by 2020 for those workers who are 25 or above. The first NLW rate from April 2016 has been set at £7.20 per hour which compares favourably to the current National Minimum Wage (NMW) of £6.50 per hour for those workers aged 21 or above.

As a result of the already published rates for an increased NMW, and now the NLW, employers will be faced with an obligation to pay their workers as follows:

Rate Description Current From October 2015 From April 2016
London Living Wage Rate of pay set independently - but voluntary £9.15 TBC TBC
Living Wage Rate of pay set independently - but voluntary £7.85 TBC TBC
National Living Wage (new)  Workers aged 25 or over - mandatory from April 2016 N/A N/A £7.20
NMW Standard (adult) Workers aged 21 or over £6.50 £6.70 £6.70
NMW Development Workers aged between 18 and 20 £5.13 £5.30 £5.30
NMW Young workers Workers under 18 £3.79 £3.87 £3.87
NMW Apprentice Workers under 19 years of age or those aged 19 and over but in their first year of apprenticeship £2.73 £3.30 £3.30

George Osborne and other commentators have suggested that the introduction of the NLW will:

  • boost wages for 6 million people and give an estimated 2.5 million people an average pay rise of £5,000 over five years
  • ensure that younger workers will secure work, gain experience and allow them to maximise the opportunities available to them
  • create 1.1 million jobs, but may encourage employers to recruit younger workers under the age of 25; and
  • may result in the loss of employment, especially those who are employed in businesses which, as a result, will be presented with a significant inflation to their wage costs

While the introduction of the NLW is generally considered a good thing it does remain questionable as to whether it is really a 'Living Wage'? As we have mentioned previously, the existing and voluntary Living Wage (as promoted by the Living Wage Foundation) is an hourly rate of pay set independently and updated annually, and is calculated according to the basic cost of living in the UK. The Living Wage rates are already higher than the NLW rates which will come into effect in April 2016 and therefore it is understandable why some people believe that the NLW is simply a 'premium' supplement to the NMW to those workers who are 25 or above, and not a 'Living Wage'.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the Author

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Michael Briggs

Senior Associate

0370 086 5066

Michael is an experienced employment lawyer who provides practical, commercial and results-driven advice to a wide range of clients in respect of disciplinary matters, redundancy & reorganisation, absence and performance issues, employment contracts & handbooks and executive appointment & exits. Michael also defends employment tribunal claims.

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