National Living Wage: What you need to know

Friday 1 April 2016

The National Living Wage came into effect on 1st April, giving a compulsory pay increase to UK employees aged 25 and over. The rate is £7.20 per hour (7.5% more than the current minimum wage) and is set to rise each year until reaching at least £9.00 per hour by 2020.

There has been a lot of speculation in the media about the potential impact of this on the number of jobs that could be lost, or benefits that may be reduced because of the cost to businesses. But there are other issues for employers too.

Whilst the immediate effect of the legislation seems straightforward – an increase in hourly rate – the knock on effects of this needs to be considered more widely. For example addressing the gap in pay rate between staff who are to receive the new rate of £7.20 and those on a higher rate. For these higher paid staff the differential in pay is reduced and so they may feel that they are perceived as of less ‘value’ than before. In addition, employment benefits paid by salary sacrifice, for example pensions or childcare vouchers, may have the effect of reducing the hourly rate of pay so that it falls below the legal requirements.

The fines for non-payment of the national living wage and the national minimum wage can be significant so it is worth considering a review of any factors that may affect this.