Businesses will be recalculating their finances today (1 April 2016) with the introduction of the national living wage as announced by the Chancellor, George Osborne in last year’s budget.
The scheme will see full and part-time workers aged 25 and over paid £7.20 an hour, rising to more than £9.00 per hour post 2020.
This all seems relatively simple, with many employers thinking that they need to start paying this new rate from today to all employees who are 25 or over, which isn’t in fact the case. We’ve put together this handy short guide for employers to cover what you need to know about the national living wage and how this will affect your business.
When do we need to pay the new rate?
Even though the rate is applicable from 1st April, this doesn’t necessarily mean that everyone over 25 will be celebrating a pay rise from today! The rise on wages will be dependent on the pay reference system on which your company operates, ie paid weekly or monthly. If your employees are paid monthly on the 15th of each month, then you would need to start paying the minimum wage from then. If they are paid weekly on a Friday for example, then the rate would start from today.
Workers approaching the age of 25 will also be treated under the same principle. The national living wage will not be applicable as soon as they hit their 25th birthday, but until the next pay reference period after their birthday.
Do we need to amend our existing pay scales?
The simple answer is no. The introduction of the wage shouldn’t disrupt your existing pay structures and there is no legal requirement to change them.
From an employer’s perspective, businesses will need to bear employee satisfaction and staff retention in mind. If you are paying a fully skilled worker £8 per hour and semi- skilled worker £7 per hour, then the rise in wages can be seen to close a skill related gap. This may therefore leave some employees understandably questioning the value of their skillsets and may want to look elsewhere.
Whilst a simple answer to save money may be to employ a workforce below the age of 25, this does not work in practice as discrimination law prevents someone from being refused a job based on their age. Likewise, if an employee has reason to believe that they have been dismissed before their 25th birthday to avoid paying the increase in wage, they could pursue a legal claim on the basis of age discrimination or unfair dismissal in the Employment Tribunal.
Does this affect apprentices?
Despite the introduction of the minimum wage, the current rate for apprentices remains unchanged and will need to be maintained for those apprentices who are under 19, or over 19 but in the first year of their apprenticeship. This is in line with the current rate of £3.30 per hour.
The exception to this rule is those apprentices that are over 19 and not in their first year of apprenticeship, who are entitled to the minimum wage for their age. For example, if someone is 25 years of age and in their second year of an apprenticeship, they will be entitled to the new living wage of £7.20 per hour.
Most importantly, the key point to take away from the introduction of the national living wage is that this will be enforced in exactly the same way as the minimum wage, and therefore fines are enforceable for any businesses that do not adhere to the regulations and pay employees appropriately.
If you are concerned on how the introduction of the national living wage is set to affect your business please contact Farleys’ specialist Employment Law & HR team on 0845 287 0939. Alternatively, please complete an online enquiry form.