National Living Wage now in force

Posted by Paula Kathrens on
The introduction of the National Living Wage (NLW) on 1 April 2016 is one of the most significant developments of the year so far and is still proving controversial with many employers. According to the Office for Budget Responsibility, 1.3 million workers will be paid the new NLW this year, increasing to 2.9 million workers by 2020.

There are significant consequences for not complying with the NMW and NLW. HMRC continues to have responsibility for enforcement. The financial penalty for non-payment doubled to 200% of the arrears due to the worker for pay reference periods on or after 1 April 2016 (this will be halved if the arrears are paid within 14 days) and the maximum fine for non-payment remains at £20,000 per worker. Finally, don't forget the government's well- publicised policy of naming and shaming employers for not paying the NMW.

The NLW is £7.20 an hour and is a new, additional, top rate of the National Minimum Wage (NMW) payable to workers aged 25 and over. The other NMW hourly rates are as follows:

  • adult rate (ages 21 to 24) £6.70 (increasing to £6.90 in October 2016)
  • development rate (ages 18-20) £5.30 (increasing to £5.55)
  • youth rate (under 18) £3.87 (increasing to £4.00)
  • apprentice rate (under 19 or within the first 12 months of apprenticeship) £3.30 (increasing to £3.40).

There will be no change to the NLW in October 2016 but it is intended that the NLW will increase to £9 an hour by 2020.

According to the Resolution Foundation, which monitors the living standards of people on modest incomes, around a third of workers in low pay areas will benefit from the introduction of the NLW. Three groups will benefit in particular: women who are over-represented in minimum wage jobs, workers between the ages of 25 to 30 and people still working over the age of 66. However the impact of the NLW will vary across the country with workers in London and the south east seeing relatively little change.

In terms of the impact of the NLW on specific business sectors, the care sector faces particular challenges, especially in Wales, where many people are employed in it and where much of the sector's income is generated by the public sector.

There is some concern that the NLW will mean that employers will perhaps seek to recruit younger staff or indeed reduce the number of staff, delay investment plans or reduce overtime or other benefits. On the other hand, many employers have chosen to pay the unrelated (and not to be confused with) voluntary Living Wage which is currently £9.40 an hour for London and £8.25 outside London. An estimated 2,300 employers are paying the Living Wage with an impressive 635 of these in Wales.

About the Author

Paula is a Partner in our Employment law team advising organisations in both the public and private sectors on all aspects of contentious and non-contentious employment law.

Paula Kathrens
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