The Government is introducing a new tier of the National Minimum Wage rate for workers aged 25 or over and rebranding it as the ‘National Living Wage’. From 1 April 2016 employees, workers, agency workers, casual labourers and agricultural workers who are aged 25 or over will be entitled to receive £7.20 per hour whilst other workers will be entitled to receive the following rates:

  • 21-25 years old- £6.70 per hour
  • 18-20 years old – £5.30 per hour
  • under 18 years old – £3.87 per hour
  • apprentices – £3.30 per hour

This means that those aged 25 or over (and earning the National Minimum Wage) will receive a pay rise of 50 pence per hour whilst younger workers and apprentices will stay on the same rates that have been in place since 1 October 2015. This represents the biggest pay rise for those paid the National Minimum Wage in over 10 years.

The increase was announced by the Chancellor in the Summer Budget and whilst changes in the National Minimum Wage are usually introduced in October of each year following consultation and a report by the Low Pay Commission, this increase was introduced without any input from the Low Pay Commission. (The Low Pay Commission is an independent body that advises the Government on the National Minimum Wage.)

The Government has asked the Low Pay Commission to make recommendations on the increase it believes should apply to the National Minimum Wage (for those aged under 25) from October 2016 and to recommend the level of the National Living Wage (for those aged 25 or over) to apply from April 2017. It is likely that the Low Pay Commission will recommend and the Government will implement further increases as the Government strives towards its aim of moving away from a “low wage, high tax, high welfare society” towards a model of “higher pay and higher productivity” and hopefully lower tax.

The Government is concerned not to damage the employment prospects of the low paid but whilst the labour market is performing strongly (with job growth and reductions in unemployment greater than forecasted) increases are likely to continue. Especially as ever increasing labour supply from older workers, more women in work, greater conditionality for benefits claimants and immigration means that strong employment growth is having little effect on wages.

The Government’s objective is to have a National Living Wage of over £9 per hour by 2020. This is still lower than the Living Wage advocated by the charity the Living Wage Foundation which calculates the Living Wage according to the basic cost of living in the UK at £8.25 per hour in the UK and £9.40 per hour in London. The Living Wage is entirely voluntary but has cross party support.

Advice for employers 

Employers are advised to review their workers’ salaries and make appropriate arrangements in good time before 1 April 2016 to make sure they are paying staff correctly. The consequences of non-compliance are expensive.  Employers can be:

  • fined 200% of the amount owed if arrears are not paid within 14 days; and
  • fined up to £20,000 per worker.

Non-payment may also result in liability before the Employment Tribunals. If an employer dismisses an older worker to avoid paying the National Minimum Wage this will amount to an automatically unfair dismissal and will also amount to age discrimination. Employees who have less than two years’ service will be able to present a claim.

Similarly, in the recruitment process, an employer who treats older applicants less favourably and rejects their applications on the ground that they want to limit their staffing costs will be discriminating and such a practice is unlikely to be justifiable.

Employers should seek advice if they are in any doubt as to the meaning and effect of the new regulations.