Last summer the Chancellor, George Osborne, announced the introduction of a National Living Wage from April 1 2016.
Payment is compulsory to all workers aged 25 or over and is set at £7.20 per hour. the old rate for this age group was £6.70 per hour, so this represents more than a seven per cent pay rise for low-paid workers.
Confusingly, the voluntary “living wage” set by the Living Wage Foundation is higher than the NLW, at £8.25 per hour across the UK and £9.40 in London.
It is based on the amount that an individual needs to earn to cover the basic costs of living. More than 1,000 employers are accredited by the Living Wage Foundation, having committed to paying it to all employees and subcontractors.
So, what do you need to do to comply? The old NMW was split into bands depending upon a worker’s age and whether the worker is an apprentice.
The new National Living Wage is just another, higher band. This means that all of the same rules apply.
Tips, expenses, benefits and pension contributions cannot be added on to a worker’s basic rate of pay when calculating the NLW
An employer cannot make deductions from pay for items such as uniforms or tools if they would take workers’ pay below the NLW
Deductions can be made from pay for accommodation, but only to a maximum of £5.35 per day
Workers paid at the apprenticeship rate must be working under a properly drafted apprenticeship contract.
The Government is putting an increasing amount of resources into enforcement. HMRC compliance officers can carry out inspections at any time, and can require employers to produce records and attend interviews.
If the National Living Wage has not been paid, the employer must repay the arrears to the worker, as well as pay a financial penalty to HMRC of 100 per cent of the arrears.
The employer will then be “named and shamed” by DBIS.
Often, the reputational damage to an organisation of being named and shamed is of more concern than the penalties.
So the message for employers is get up to speed with the NLW and also audit your current payroll to ensure all workers are being paid at the correct rate, before the HMRC compliance officers come knocking.