National Living Wage – Are You Ready?

The new National Living Wage comes into effect from 1 April 2016.  The measure is being introduced as part of the government’s plan to move from a low wage, high tax and high welfare society to a higher wage, lower tax and lower welfare society.

What changes are ahead

Employers will be required to pay employees aged 25 and over the new compulsory National Living Wage of £7.20 per hour, an increase of 50 pence per hour from the current rates set by the National Minimum Wage.  This equates to a monthly salary of approximately £1,170 gross based on a 37.5 hour working week.

Employees under 25 are not affected and should continue to be paid the national minimum wage at the correct rate for their age as shown below:-

Year                               21 – 24         18 to 20           Under 18         Apprentice

2015 (current rate)            6.70              5.30                  3.87                  3.30

What are the consequences of getting it wrong?

For employers who pay their eligible employees less than the national minimum wage or national living wage, the penalties are set to double from 1 April 2016.  In addition to being required to pay the shortfall of pay to the employee, employers will face a penalty, set to increase from 100% to 200% of the underpayment.  A minimum penalty of £100 and a maximum penalty of £20,000 will apply for each worker who has been underpaid.   Our experience is that HMRC are increasingly focusing not just on wages paid, but on deductions made by employers which (while perfectly legal) can take employees beneath the minimum wage level.  If you are unsure about how this might affect you please contact us.