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The National Living Wage: Time to get prepared

What is the National Living Wage (NLW)?

This is a new, mandatory premium to be paid on top of the current National Minimum Wage (NMW). This will only apply for all workers over the age of 25. From the 1 April 2016, the current adult rate of NMW will increase by 50 pence from £6.70 to £7.20 per hour to satisfy and work towards the Governments’ target NLW.  The penalty for failing to comply will be 200% of unpaid wages, up to a maximum of £20,000 per worker.

Consequences for employers

This will not only affect the basic rates of pay for various staff, but also pension contributions and more staff may need to be auto-enrolled (if you have reached your staging date) because of their higher rate of pay. Employers should also be aware that National Insurance contributions will rise and more staff may become entitled to statutory payments such as maternity and paternity pay as a result of exceeding the earnings threshold.

Employers should be aware that higher paid workers may query their own payments, as the NLW is set to rise by 6-7% per year in order to hit the Government’s target of £9.00 per hour by 2020. When compared to the average workforce rise of 2% per year nationally, it is not surprising they may challenge the level of increase. Therefore, employers may also have to consider the effect on the wider workforce and how this can be managed in practice.

Tips for employers

This is an opportunity to review existing policies and practices and make positive changes to the business. The goodwill generated from the increased payment to hourly paid staff, may provide an opportunity to push through other changes in the business, for example, a variation of working hours or revising jobs to enhance productivity. Employers should note that any changes to employees’ terms and conditions are still subject to the usual consultation obligations. Employers may also want to consider increasing the hourly rates higher than the £7.20 obligation, which could increase staff morale but will be at a cost to the business.

Finally, employers should note that bonus, commission and other incentive payments can be included in the calculation of the NLW. However, premium payments for standby, overtime, shift work or pension payments will not be included in the calculation.  This may also be an opportunity to look at payment terms and rewards, considering measures to coincide with the increase which are low costs to the business, such as discounted gym membership in a bid to balance goodwill.  Whilst the main issue for some employers will be the increase in costs, employers can prevent this impact with clear preparation, which focuses on limiting the potential cost risks to the business.

Please feel free to call us on 0191 282 2880 for a free no obligation chat or email us if you require further advice.

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