April 2016 will see further employment law reform with the introduction of the National Living Wage.
Janine Lawton, employment lawyer at Tallents Solicitors in Newark looks at the key implications for employees and employers.
The National Living Wage will be compulsory across the UK, with the first stage being introduced in April 2016.
There are currently four categories of earner including:
~ apprentices (which includes apprentices aged 16-18 or apprentices aged 19 or above in their first year of apprenticeship);
~ under 18s;
~ 18-20 year olds;
~ and those aged 21 and over.
The introduction of the National Living Wage in effect, creates an additional category of earner, the over-25s.
Will I benefit from the National Living Wage?
From April 2016, all workers aged 25 and over will be entitled to a minimum National Living Wage of £7.20 an hour (set to rise to £9.00 per hour by 2020), whereas the National Minimum Wage will still apply for those aged 24 and under.
The Government states that the aim of the National Living Wage is to reduce reliance on the state topping up wages through the benefit system. It is estimated that some 2.7 million low wage workers will be given a direct boost by the changes and a further 3.25 million workers could also see a wage increase as a result.
But isn’t there already a voluntary Living Wage?
Confusingly, the newly introduced National Living Wage differs from the voluntary Living Wage scheme set by the Living Wage Foundation.
Whereas the current Living Wage is a voluntary scheme under which around 1,600 UK employers have already committed to paying a Living Wage (currently £7.85 per hour with a £9.15 rate for London), the National Living Wage will be mandatory for all employers from April 2016.
It is perhaps therefore, simpler to think of the National Living Wage as an increase to the National Minimum Wage.
What will the National Living Wage introduction mean for employers and employees?
The rise to £7.20 per hour is, in effect, a 50p increase to the current National Minimum Wage rate for workers aged 25 and over. This will equate to a £900 per year pay-rise for a full-time worker earning the National Minimum Wage.
Such is the Government’s commitment to the National Living Wage it is to appoint a new labour market enforcement director to ensure compliance. Those failing to comply could be subjected to a penalty of up to £20,000. It could also lead to disqualification as a company director for up to 15 years.
Risks of the National Living Wage for employers
There is undoubtedly a risk that the introduction of this new category of worker could lead to discrimination.
Employers should be wary of recruiting younger candidates purely on economic grounds. Similarly, an employer who dismisses an employee due to qualifying for the higher hourly rate runs the risk of claims for unfair dismissal and age discrimination.
What action should employers take now?
Whilst it may be tempting for employers to ignore this, the risks of doing are very high. The key message here is for employers to start planning for these changes now.
The employment law specialists at Tallents are here to help employers in advance of the compulsory introduction of the National Living Wage in April 2016. Please call 01636 671881.
Help for employers
The government has issued a booklet on the National Living Wage. It covers how to calculate the minimum wage, what counts as pay, what hours needs to be counted, and how to enforce the national minimum wage.