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Get ready for the new National Living Wage

It’s time to start planning for the arrival of the new compulsory National Living Wage which comes into force this April.

This new rate of £7.20 an hour, a rise of 50 pence from the current level, will have to be paid by law to all workers aged 25 and over. What’s more, this will rise again to £9 an hour by 2020.

With the Government setting up a new HMRC team to investigate deliberate non-compliance with sanctions including penalties, prosecutions and naming and shaming, it’s key to start looking ahead.

What do you need to know?

  • The National Living Wage is not optional unlike the much publicised Living Wage which is an informal benchmark to improve wages for low paid workers and not a legally enforceable minimum level of pay. Despite this, more than 2000 employers, including KPMG, Burberry and Lidl, have voluntarily signed up to the Living Wage Foundation’s pay rate scheme;
  • The national minimum wage remains the compulsory minimum level of pay set by the business secretary each year on the advice of the Low Pay Commission. It stands at £6.70 an hour for adults aged 21 and over, and £5.30 for those aged 18 to 20;
  • The new National Living Wage will be paid only to those age 25 and over. Anyone under this age has their minimum pay levels set by the national minimum wage.

What do you need to do?

  • Identify any employees who will need to be paid more under the new legislation. Remember to look at things like salary sacrifice which could bring a worker’s salary below the specified statutory rate;
  • Investigate how you will afford an increased wage bill. Assess the financial impact on your business and identify potential remedies – will some form of restructuring be needed or is it more likely costs will be passed on to consumers?
  • Consider staff morale in the wider workforce. Employees who are earning just above the National Living Wage, and those under 25, may want a pay increase in order to maintain the pay differences between staff.
  • Consult with recognised unions and employee representatives to minimise legal risks, employee relations issues, and potential damage to your company’s reputation;
  • Check out what your competitors are doing – your own staff retention and recruitment could be affected if rivals are offering a much better overall pay deal than you;
  • Make sure you assess the likely impact the new rate will have on any liabilities in your company’s service provision agreements.

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