Following the proposed increase in the national minimum wage (“NMW”) as part of Budget 2017, we examine the background to the 10 cent increase and explore whether it is indicative of a move towards a national living wage in Ireland.

What is the Low Pay Commission?

The Low Pay Commission (“LPC”) was established as an independent statutory body in July 2015. Its primary function is to examine and make recommendations annually to the Government on the appropriate level of the NMW.

Following a recommendation from the LPC in 2015, the NMW was increased by 50 cent with effect from 1 January 2016, from €8.65 to €9.15.

The most recent proposed increase of 10 cent, with effect from January 2017, reflects Government approval of the recommendation of the LPC in its July 2016 report, to further increase the NMW to €9.25.

Interestingly, the LPC’s July 2016 report referred to the diverging opinions in submissions received by the LPC from various parties as part of a public consultation process.

Many submissions argued that given the significant rise in the NMW in 2016, the NMW should be allowed to ‘settle’ and the impact of the change be assessed before any further increase. Others were firmly of the view that the NMW should be increased with the aim of reaching the ‘Living Wage’ in the short-to-medium term. Certain parties asserted that advances should now be made in improving the situation for those on low pay, on foot of evidence of a recovery in our economy.

A Move Towards a Living Wage in Ireland?

The ‘Living Wage’ in Ireland has been calculated by the Living Wage Technical Group (the “LWTG”) as €11.50 per hour. According to the LWTG, a Living Wage is intended to establish an hourly wage rate to provide employees with sufficient income as a means of achieving an acceptable minimum standard of living.

However the LWTG is entirely separate to the LPC and has no statutory basis. Further, unlike in the UK, there is no statutory national living wage in Ireland and any employer that pays employees a living wage of €11.50 per hour, does so entirely on a voluntary basis.

While the dissenting members of the LPC strongly argued in their dissenting reports in favour of a larger increase in the NMW towards the Living Wage of €11.50 per hour, there is no indication in its July 2016 report that the LPC is moving towards recommending that the Government imposes a Living Wage anytime in the near future.

Conclusion

The precise date that the increased NMW will come into effect will be confirmed on enactment of the Finance Act before the end of 2016, although it is currently anticipated that it will be effective in January 2017. On confirmation of the effective date, employers of individuals on the current NMW should take appropriate payroll action and let employees know about their new pay rate.