July 13, 2016
This spring saw the introduction of the National Living Wage (NLW), leading to cheers from many workers and groans from many employers in sectors such as hospitality and care where paying minimum wage is the norm.
From April 1 2016, all workers aged 25 and over became entitled to receive a minimum of £7.20 per hour. This amounted to a 50 pence per hour pay rise for those who were eligible – the biggest rise seen for more than ten years.
With rising employment figures, the Government has sought to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.
It is important to recognise that the NLW is not the same as the independently set ‘living wage’, promoted by the Living Wage Foundation. Despite the new £7.20 NLW and Government plans to increase this to £9 per hour by 2020, the NLW still does not represent the Living Wage Foundation’s view that the basic cost of living in the UK should represent a minimum payment of £8.25 per hour outside of London and £9.40 in London.
Consequences so far
Despite concerns that the NLW would lead to job losses due to the increased wage bills for employers, so far, these fears do not seem to have transpired. A recent survey of 500 businesses carried out by Ipsos MORI shows that the most popular immediate action taken by employers to manage the additional wage costs has been to increase prices (36 per cent) rather than reducing staff numbers. This was followed closely by 29 per cent of the businesses surveyed who reported taking a cut to profits and 16 per cent of the businesses asking workers to do more. When asked about the longer-term plans over the next five years, unsurprisingly, there was a shift from businesses reducing profits, this option decreasing from 29 per cent to 18 per cent, and a move towards increasing pressure on workers to do more, up from 16 per cent to 26 per cent.
Looking ahead, employers will also need to budget for further increases as the NLW is set to rise by 6-7 per cent per year in order to hit the Government’s target of £9 per hour by 2020. This compares to the average workforce rise of 2 per cent per year nationally. However, Brexit and the result of any negotiated trade deals are likely to have an effect on UK salaries and the rise to the NLW.
The consequences for non-compliance with the new NLW can also be costly. Employers can be fined 200 per cent of the amount owed if arrears are not paid within 14 days and up to a maximum of £20,000 for each underpaid worker. Employers should also be wary that if they dismiss a worker to avoid paying the NLW, it will likely amount to an automatic unfair dismissal and an employment tribunal claim for uncapped compensation.
0191 282 2882