1. What is it?

The National Living Wage will come into force from 1 April 2016 and is essentially an extension to the National Minimum Wage.  Employers will have to pay all workers aged 25 and over (except in their first year of an apprenticeship) a minimum rate of £7.20 per hour. This will represent an increase of 50p per hour compared with the current National Minimum Wage of £6.70 per hour. This rate will increase annually and is expected to rise to over £9 per hour by 2020.

2. Is there a difference between the National Living Wage and the Living Wage/London Living Wage?

Yes, there is a big difference between the two.  The National Living Wage is a compulsory wage and businesses can face serious consequences for non-compliance (see below).  The Living Wage/London Living Wage is not legally enforceable.  It is a voluntary rate that participating employers can choose to pay to a worker, and which is currently £8.25 per hour and £9.40 per hour in London.

3. Is it considered age discrimination to pay older workers a higher amount?

No. Whilst paying workers varying wages depending on age would appear, on the face of it, discriminatory, the Equality Act 2010 prevents payments connected with the National Minimum Wage from being unlawful.

4. What is the impact for employers?  

A higher wage is obviously good news for employees and represents a gross increase of £910 per year in earnings for a full-time worker on the current National Minimum Wage. However, it could have a major financial impact on employers particularly in sectors such as retail, hospitality, social care and charities, as it will significantly increase their base costs.  Furthermore, small businesses will feel the pinch of increased costs at a time when they are already facing financial pressure in contributing to workplace pensions under the auto-enrolment rules. It is possible that the additional cost may be passed onto the consumer/end user.

5. Penalties for non-compliance

Failure to comply with the National Living Wage is a criminal offence.  There is a penalty for non-payment which will be 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment will be £20,000 per worker, a substantial liability. Also, employers who fail to pay will be banned from being a company director for up to 15 years.

Action points:

  • Check the employees in your business who are eligible for the National Living Wage.
  • Ensure that procedures are in place so that eligible employees receive the increased rate on time.
  • Communicate with staff to ensure they are aware of the changes. Even though the increases result from statute you can frame it in such a way to generate goodwill amongst those who will benefit.