Julian Hoskins and Nicola Stibbs brief employers on the
hidden complexities of the new 'National Living Wage' and set out
practical steps to take now.
Not to be confused with the 'living wage' (which is a higher
proposed minimum rate of pay, promoted by The Living Wage
Foundation), the National Living Wage (NLW) will be a premium,
added to the National Minimum Wage (NMW) and paid by reference to
The NMW will remain in force and will continue to be payable.
The first NLW premium will be set at 50p, which will bring the
total NLW to £7.20.
Recent press headlines have featured the dramatic figure of £9
per hour – but this will only apply following several incremental
increases over the next five years, with the expectation that the
NLW will rise to around £9, i.e. 60% of median earnings, by
The NLW will only apply to workers over the age of
25. The NMW will continue to apply to workers under the
age of 25.
It has been reported that some large retailers, including Ikea
and Lidl, have committed to paying staff more than the NLW and
will, instead, adopt the 'living wage', recommended by the Living
Currently, HMRC is responsible for enforcing the NMW and they
will do the same for the NLW. Similarly to breaches of the
NMW, failure to comply with the NLW will attract civil and criminal
penalties. Employers who fail to pay the NLW may also risk
breaching contracts with commissioners, and expose themselves to
serious reputational risk through 'naming and shaming'
Last month, the government announced a package of measures to strengthen enforcement of the
NMW and the NLW, including doubling the penalties for non-payment
of the NMW and NLW, from 100% of arrears to 200% of arrears (but
halved if paid within 14 days). The overall maximum penalty of
£20,000 per worker will remain unchanged.
It is expected the NLW will be introduced from April 2016.
The NLW will form part of the remit of the Low Pay Commission,
which will make annual rate recommendations (in the same way that
it makes recommendations for changes to the NMW). Although the
introduction of this change is still some months away, it would be
prudent to start taking steps to prepare now.
- As ever, the devil will be in the detail when this change takes
effect. A particular concern for employers will be
identifying which particular elements of pay 'count'
towards calculating the NLW. At present, not all
elements of pay can be included when calculating whether a worker
is receiving the NMW: for example, earnings from working overtime
or unsocial hours can be included, but only at the basic
rate. However, additional payments which are linked to a
worker's individual performance, can be counted – such as incentive
or bonus payments. These calculations will continue to be important
after next April, because the NLW premium will be paid by reference
to the NMW.
- Employers need to review current payroll arrangements
now, and analyse the likely impact of the living wage
premium. When undertaking this exercise, it will be
important for employers to not only consider how the NLW will
impact on basic hourly rates, but also the knock-on effect
of the augmented hourly rate. For example, what
impact will the starting premium of 50p have on allowances and
payments which are based on workers' minimum pay? These rates may
increase in parallel with new NLW rates and may impact on wages
- Unforeseen complexities may arise if you attempt to make cost
savings by decreasing one element of a workers' pay but then offset
that loss with an increase in a different type of payment.
Case law has suggested that this may still amount to an unlawful
deduction from wages, even if the worker in question is not
worse off overall.
- Many employers will be concerned that the new NLW premium will
automatically result in a higher wage bill. However, this
does not necessarily have to be the case. With some astute
planning and restructuring, properly implemented, it may be
possible to re-organise elements of your employees' pay, so that
you comply with the NLW but keep your overall costs at their
existing level. However, that brings us to the next important
- Timing. If you need to make changes in order to minimise
the impact of the introduction of the NLW, you need to get
the ball rolling now. Even if you have the
contractual flexibility to make the changes required, you need to
build in time to allow for careful management of the process, in
consultation with staff. Ultimately, if agreement cannot be reached
and you need to enter into a dismissal and re-engagement process,
then remember that statutory collective consultation obligations,
including minimum consultation timescales, may bite.
Please do not hesitate to contact us, or your usual Bevan
Brittan contact, if you would like us to advise you on the options
for your organisation ahead of the introduction of the NLW, such
- reviewing your staff's pay packages
- consolidation of separate pay elements and any enhancements so
that they can be brought within NLW pay calculations
- safely implementing changes to remuneration packages
- advising on compliance.
We can also provide briefing sessions to your HR, payroll and
management teams, as well as step-by-step guides for implementing
any changes required.