National Living Wage: The Essentials

During his first budget speech earlier in the year, the Chancellor announced the introduction of a national living wage for all employees aged 25 and over. Different from the current ‘Living Wage’ promoted by the Living Wage Foundation, the National Living Wage rate will be £7.20 per hour rising to £9.00 per hour by 2020. For clarity, National Living Wage is a statutory premium attached to the National Minimum Wage for workers aged over 25, whereas the existing Living Wage is a voluntary payment that refers to how much an average worker needs to earn in order to cover basic living costs. The existing Living Wage increases with the cost of living and is currently set at £7.85 per hour or £9.15 in London. Many employers have already taken the decision to pay the Living Wage to employees and the Living Wage Foundation is backed by the Prime Minister and many FTSE 100 companies.
The National Living Wage has been introduced following significant debate regarding the UK’s lowest paid workers and standards of living. Reaction to the introduction has been mixed with many employers raising complaints as to the affordability of such and employees saying that the increase still does not go far enough and does not take into account the rising cost of living.
The National Living Wage will become payable from April 2016, although no actual implementation date has been fixed yet. From April 2016 the minimum wage rate for employees aged 25 and over will increase from £6.70 to £7.20. The National Living Wage rate will not however, increase for workers aged under 25 who will continue to receive the national minimum wage accordingly.
Irrespective of whether the National Living Wage is perceived as being a good thing or not, one thing is certain, the wage bills of any employers who pay National Minimum Wage will increase in 2016. Employers will need to weigh up the costs to the business and consider how the increase will be funded. The initial rise from £6.70 to £7.20 is a significant rise and has raised concerns over wage inflation. Employers should therefore start planning for the National Living Wage’s introduction and considering how best to cover their costs.
If you would like to discuss the matter of the National Living Wage in further detail please contact our employment law team on 01274 864999.