In April 2016, the concept of a “Living Wage” went from an informal benchmark (advocated by the Living Wage Foundation) to a legally enforceable level of pay, effectively creating a new tier of the National Minimum Wage (NMW) for workers aged 25 and over.
As of 1 April 2016, workers aged 25 and over are entitled to a minimum wage of £7.20 per hour which is set to increase year on year. Subject to economic growth, it is intended that the NLW will increase to 60% of median earnings by 2020, on which basis this figure should reach £9 by 2020. Indeed, all NMW rates (including the NLW) will be uprated in parallel from April 2017.
The NLW almost instantly caused controversy when employers looked to offset the increase in their overheads and sought a “zero cost” approach. Some employers considered cutting remuneration packages, lowering pay rates, stripping perks and ending pay for overtime, which resulted in George Osborne warning employers on 19 April 2016 that such actions were not within the spirit of the law and that they should heed their obligations to employees.
To that end, the government has taken a robust approach to enforcement and non-compliance:
- failure to comply with the NLW will be a criminal offence,
- penalties for non-payment have been doubled to 200% of arrears (which will only be halved if paid within 14 days),
- guilty individuals risk being disqualified as a company director for up to 15 years, and
- the HMRC enforcement budget has been increased from £13 million to £20 million
Non-compliance is not the only risk facing employers though; age discrimination under the Equality Act 2010 (the “Act”) is a potential pitfall of which employers should also be mindful.
As is clear from the table below, the wage to which qualifying workers are entitled is determined according to their age; this would normally amount to age discrimination in contravention of the Act. However, it was believed that paying a homogenised rate risked deterring employers from hiring young workers and increasing youth unemployment. Such an approach has however risked employers now prioritising young workers to the detriment of older workers.
Accordingly, there is a NMW (and it logically follows that there will be a corollary NLW) exemption for paying workers of different ages different rates of pay provided the pay structure is based on the NMW age bands; such distinctions do not, therefore, fall foul of the legislation.
Click here to view the Table
However, employers will still risk age discrimination claims if age is a determining factor in redundancy or recruitment. If, for example, in a bid to limit the costs of higher wage rates, an employer favours individuals under the age of 25 in its recruitment process, or those aged over 25 in its redundancy selection, it will leave itself open to claims of age discrimination to which the Tribunals will likely take a robust stance.
Certain industries are naturally skewed to a younger employee demographic. The hospitality industry, in particular the catering sector, has a predominance of young employees. Recent statistics show that:However, employers will still risk age discrimination claims if age is a determining factor in redundancy or recruitment. If, for example, in a bid to limit the costs of higher wage rates, an employer favours individuals under the age of 25 in its recruitment process, or those aged over 25 in its redundancy selection, it will leave itself open to claims of age discrimination to which the Tribunals will likely take a robust stance.
- 34% of the employees in the hospitality industry are aged under 25 compared to 12% across the economy as a whole, and
- on average 66% of waiting staff are under 25.
Employers in sectors such as these would, therefore, be well advised to be particularly vigilant in their recruitment procedures, ensuring that they recruit the candidate best for the role, regardless of their age.
Such vigilance is advisable because, if successful, an employee claiming age discrimination (as with all discrimination claims) is entitled to uncapped compensation. There is also the risk that exemplary damages may be awarded by a tribunal to serve as a deterrent to other employers. It is estimated that the difference in wages between workers aged 21 to 24 and those aged 25 or over is approximately £1,000 per year per employee. Arguably, such a saving does not justify the risk of an unlimited compensatory award in the event of a successful discrimination claim.
Employers affected by the NLW and NMW who are endeavouring to manage their overheads can minimise their potential exposure to claims of age discrimination by:
- Ensuring that adverts are age-neutral in language and are placed through media that reaches a diverse readership
- Request standardised application forms from candidates, rather than personalised CVs which may inadvertently reveal the age of an applicant
- Ensure the selection of candidates is made using objective criteria from the application form
- Ensure that interviewing staff have had proper equal opportunities training
- Ensure that effective monitoring is undertaken or staff demographics, to ensure that any early signs of bias or unconscious basis in recruitment is detected and remedied.