The National Living Wage (NLW) became a legal requirement on 1st April 2016. It applies to all of your workers who are aged 25 and over who must now be paid a minimum of £7.20 per hour.
The New Rate
It is important to understand how the NLW fits in with the existing law on the National Minimum Wage (NMW). Before the implementation of the NLW, there were 4 bands of minimum pay rates grouped according to age, spanning workers who are no longer of compulsory school age onwards. The adult rate – the then highest rate of £6.70 – applied to workers aged 21 and over. The introduction of the NLW operates to restrict the application of this rate to only those who are aged 21 to 24; the NLW takes over for workers aged 25 and above.
However, you only need to reflect the new rate from the start of your first full pay reference period starting on or after 1st April. You are able to set your own start date for the pay reference period and if yours starts mid-month, for example, so that in April it will start on 16th, you do not need to reflect the higher rate in pay until that date.
“There is no legal obligation to provide a corresponding pay increase to employees who are younger than 25 until the New Minimum Wage rates increases in October 2016….”
The increase will be welcome news to your workers aged 25 and over; but what about younger workers who earn the NMW and will miss out? You may well encounter some disgruntlement from these workers whose skills are the same as those older than them but will not get a pay rise. Similarly, if you operate a pay structure dependent on skills, your higher skilled workers may complain that their skills have effectively become devalued because the pay gap to the lesser skilled has decreased.
There is no legal obligation to provide a corresponding pay increase to employees who are younger than 25 until the NMW rates increase in October (see below) nor statutory regulation meaning that pay differentials for employees with different skills grading should be maintained after implementation of the National Living Wage. However, you should check contracts of employment and any collective agreements which apply which may provide contractual rights in this regard.
Changing your recruitment practices so that you only employ workers aged under 25 in order to avoid the National Living Wage is likely to lead to claims of age discrimination, as would dismissing employees when they reach the age of 25.
National Minimum Wage October 2016 Increases
The Government has also recently announced the increases to the hourly NMW rates to take effect from October 2016, as follows:
- age 21 – 24: from £6.70 to £6.95
- age 18 – 20: from £5.30 to £5.55
- age over compulsory school age – 17: £3.87 to £4
- apprentice rate: £3.30 to £3.40
Additionally, it was announced that from 2017, increases to the NMW will take place in April each year, rather than October. The National Living Wage and National Minimum Wage will therefore increase at the same time from 2017.
Another recent amendment to the law means that, if employers are found by HMRC to have failed to pay NMW or NLW, they may have to pay a fine which is equal to 200% of the underpayment. The level of the fine was previously 100% of the underpayment.