The National Living Wage has gained renewed publicity following the Shadow Chancellor’s comments at the Labour Party conference in which he outlined Labour’s plans to create a “real Living Wage”, suggesting a rate above £10 per hour.
The National Living Wage was introduced on 1 April 2016 for all working people aged 25 and over, and is set at £7.20 per hour. The current National Minimum Wage still applies for those under the age of 25.
From October 2016 the National Minimum Rates will increase to:
The rates will then change every April starting April 2017, in line with rate increases for the National Living Wage.
The initial rate of the National Living Wage was set by Government at £7.20 per hour, with the Government announcing an intention to increase the rate to £9 per hour by 2020, which left some employers having to work out how they were going to find the extra cost, particularly having regard to auto-enrolment and changes to holiday pay for overtime. For many it is the cumulative effect of these costs that creates problems.
The National Living Wage forms part of the remit of the independent Low Pay Commission which also makes annual rate recommendations to the Government for the National Minimum Wage. Therefore, unless Government interferes and this becomes political (which appears to be likely given the Shadow Chancellor’s comments), the ultimate recommendation will still fall to the Low Pay Commission.
On 13 April 2016, the Low Pay Commission opened a consultation seeking views on the existing rates and what rates that should apply from April 2017. This consultation closed on 29 July 2016 and on 14 March 2016, David Cameron accepted the LPC’s recommendations for the year in respect of the National Minimum Wage and announced increases to the National Minimum Wage rates with effect from 1 October 2016 (as set out above). We are now waiting for the LPC’s recommendations on the level of rates that will apply from April 2017, which are anticipated in October 2016.
Whilst £1 or £2 difference per hour doesn’t sound a lot, it can make quite a lot of difference to an employer’s overall wage bill. The EEF have stated that a £10 plus an hour minimum wage would raise annual salaries for the lowest paid to £19,250, meaning businesses would pay around £23,000 per employee.
We already know that some businesses have had to make some fairly tough decisions to account for the introduction of the National Living Wage, including cutting overtime, changing benefit/pay structures, job losses and so on. Some of these have attracted great publicity. The question therefore is what will be the true cost of increases to the National Living Wage and the proposed introduction of the “real” Living Wage? Whilst most employers would not argue with having to pay a fair wage for work done, and with the ultimate objective of the National Living Wage, many employers would say that there is a need to balance those objectives against the commercial and economic pressures that many businesses face. It will be interesting to see what the Low Pay Commission recommends.
If you would like any further information relating to the National Minimum Wage, National Living Wage or otherwise on any employment law matters then do contact a member of the team.
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