National Living Wage Goes Live

The National Living Wage has finally come into effect today, 1st April 2016. What is it? How does it affect employers? And what do you need to do to make sure you are 100% in compliance?

What Is The National Living Wage?

National Living wageIntroduced by Chancellor George Osborne in the Budget 2015, the National Living Wage is an attempt to make sure that employees, either full or part time, earn enough money to pay for everyday living costs like food, bills and transport. It is expected that the new rules will give an immediate pay rise to over 1 million workers in the UK.

The National Living Wage only applies to employees aged 25 and over, however, and is set for the current tax year at £7.20 an hour. Everyone younger than 25 will still be governed by the National Minimum Wage rates, which are currently:

  • 21-24 years – £6.70
  • 18-20 years – £5.30
  • 16-17 years – £3.87
  • Apprentices Under 19 (or 1st year apprentices over 19) – £3.30

As you can see, effectively the National Living Wage is giving your employees who are aged 25 or above an instant pay rise of 50 pence an hour on workers 12 months their junior. For an employee who works an average of 40 hours a week, the new rules will see them earning around £1,000 more per year.

The £7.20 rate is expected to rise each year and will be set by the Low Pay Commission. The aim is that the National Living Wage will top £9 an hour by 2020.

What Happens If You Don’t Pay Your Employees The National Living Wage?

There are strict penalties for any businesses which don’t comply with the new National Living Wage starting from April 1st 2016.

Any companies which don’t pay eligible workers the National Living Wage face penalties of 200% of the amount they owe, unless they pay the arrears within two weeks. The maximum penalty will be set at £20,000 per employee and any employers who flout the rule face being banned from being a company director for anything up to 15 years.

Her Majesty’s Revenue and Customs has set up a special enforcement team to tackle non-compliant employers with criminal prosecutions.

The National Living Wage – What You Need To Do

If you haven’t already, then as an urgent priority, your company needs to:

  • Find out which of your employees are eligible
  • Inform them of their new pay rate
  • Make sure your payroll department knows all the details