The Chancellor of the Exchequer George Osborne in his announcement of the 2015 Budget, put forward National Living Wage (NLW) that is to be implemented in April 2016. NLW is expected to bring higher nationwide wages to all employees who are aged 25 or above on top of the National Minimum Wage in place. It is hoped that the higher rate can attract more unemployed citizens to find a job instead of merely relying on social welfare.

What is living wage?

Currently, Living Wage is in place as a reference for employers, which is not mandatory. Living wage is computed based on the cost of living. The 2015 figure for London is £9.15 per hour, while it is £7.85 per hour for places other than London. Though NLW is going to be implemented in April 2016, its inaugural rate of £7.20 per hour is still lower than both present figures. However, the rate is higher than the National Minimum Wage of £6.70 to be effective from October 2015.

Who is eligible?

Under the current proposal, the hourly rate of £7.20 under NLW is only applicable to workers who are aged 25 or above. The rationale behind this policy is to maintain a sufficient amount of affordable vacancies for younger citizens. After April 2016, the National Minimum Wage will only apply to workers aged 24 or below.

Expected impacts and remedial measures

According to the prediction made by the Office for Budget Responsibility, a total of 60,000 jobs may be cut as a result of the wage increase. Moreover, product and service cost will inevitably be raised in order to compensate the higher wages paid to employees.

In light of these worries, two measures will be put into practice together with NLW:

  • Corporate tax rate will be cut down from 20% to 18% over the five years from 2016-2020.
  • The annual employment allowance will increase from £2,000 to £3,000 for all businesses, charities and community amateur sports clubs starting from April 2016.

Apart from these measures, it is expected that 1.1 million new jobs will be created. In short, the implementation of NLW will benefit 6 million people nationwide.

Concluding remarks

With NLW coming into play in around half-a-year time, both employers and employees should get prepared for this.

Employers should increase the employees’ salaries starting from April 2016 if the current rate does not meet NLW. In particular, Human Resources Department should set up new mechanisms to monitor the age of employees in order not to over- or under-pay.

While anticipating for higher pay, employees should also be ready for a probable increase in living cost because of the introduction of NLW. Moreover, job vacancies may get scarcer in the first few years of NLW implementation, which lowers social mobility. Therefore, employment may fluctuate with this new policy coming in effect.