The National Living Wage – the details

Staff costs changed significantly for many convenience retailers in the spring and there’s more to come with the NLW scheduled to reach £9 an hour by 2020

Katie Lamb
Katie Lamb is an employment lawyer and a member of the food and drink team, with legal firm Maclay Murray & Spens LLP

The National Living Wage, introduced in April, has been debated extensively in terms of the effects on business costs and issues like staff retention. But what are the key rules and regulations?

What is the National Living Wage (NLW)?
It is the name given to a new rate of National Minimum Wage (NMW) for workers aged 25 years and over.
It is, in effect, a premium added on to the NMW. As of 1 October 2015, the NMW was set at £6.70 per hour for workers aged 21 or over. The NLW premium is currently set at an extra £0.50 pence per hour, which means all eligible workers are now entitled to pay at a rate of £7.20 per hour. However, it is important to note that this premium is not fixed and is set to increase with a view to the NLW increasing to £9.00 per hour by 2020.

Who does it apply to?
The NLW is payable to all workers aged 25 and over who are not in the first year of an apprenticeship. Effectively, the NLW will replace the NMW for those workers – a change expected to boost the wages of approximately 6m people.

What about workers under 25? Has their pay entitlement changed?
No. The NMW will continue to apply for those aged 16 to 24 at their respective rates per hour, as will the apprenticeship rate.

Is this the same as the ‘Living Wage’ set by the Living Wage Foundation?
No. The Living Wage Foundation is a campaigning organisation which promotes a voluntary minimum hourly rate of pay calculated according to the basic cost of living. By contrast, the NLW is implemented by law and accordingly, the requirement for compliance with the NLW will be enforced as strongly as the NMW.

Do all payments made to workers count towards meeting the NLW?
In the same way that particular elements of pay, for example certain allowances, benefits in kind and tips, do not count towards the calculation of NMW, the same will apply to the calculation of the NLW.

What are the consequences of failing to pay the NLW?
The Government has announced that a tough stance will be taken on non-compliance, with the imposition of penalties: 200% of arrears owed to workers up to a maximum of £20,000 per worker that has been underpaid; the referring of cases for criminal prosecution; and naming and shaming of the worst-offending employers. In addition, directors of companies found to be non-compliant may be disqualified from being company directors for up to 15 years for the non-payment of the NMW and the NLW.

I have workers who are 25 and over but haven’t been paid the NLW since it came into force in April. What should I do?
If you have paid a worker below the NLW (or the NMW) any arrears due must be paid immediately. Checks of payment records (which should be retained for three years) can be carried out at any time by HMRC officers.
Any breach identified will require arrears to be paid immediately with the risk of any of the punitive measures above being implemented.

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