The budget released on 08 July 2015 announced a National Minimum Living Wage (NMLW) for individuals over 25 causing many employers to be concerned whilst employees look set to celebrate.
Present Position
The existing framework is set out below.
| 01 October 2014 | 01 October 2015 | |
| Apprentice* | £2.73 | £3.30 |
| Age 16-17 | £3.79 | £3.87 |
| Age 18-20 | £5.13 | £5.30 |
| Age 21+ | £6.50 | £6.70 |
*If under 19 or in first year of apprenticeship
The NMLW
The NMLW will be brought in in April 2016 and will guarantee individuals over 25 £7.20 per hour. The hourly rate will rise year on year until it reaches £9 per hour in 2020.
Impact
The Living Wage Foundation estimates that the increase will affect 2.5 million workers. They are concerned that the NMLW will not go far enough to help people out of poverty. Their main concerns are:
- The increase will not help over 2 million workers who are too young to qualify
- The increase will do little for the 586,000 workers in London who face higher costs of living
When the NMLW is introduced, over an average working week of 35 hours an employee would receive an additional £17.50 effectively giving them a £910 per year pay rise. Meaning if you employ 100 people you will be facing an increase to your wage bill of £91,000.
The Government intends to offset the impact on employers by introducing the following measures:
- Corporation tax reduced to 19% in 2017
- Corporation tax reduced to 18% in 2018
- Increased employment allowance meaning employers of four full time workers on NMLW would make no National Insurance Contributions
Options for Employers
If an employer genuinely cannot afford the increase in wages than there are some options available:
- Decrease hours?
- Reduce the number of employees?
- Remove paid lunch breaks?
- Increase the price of goods or services?
The first of these three suggestions would generally require employers to consult with employees and follow a fair and legally compliant procedure in order to introduce the changes. We therefore recommend that you seek legal advice if you considering taking such action.
Conclusion
It is clear that the simple addition of the National Minimum Living Wage for those over 25 will have a far reaching impact on employers and employees.
How employers will react remains to be seen but with 162 employers being “named and shamed” for not paying the National Minimum Wage since October 2013, along with the increase of fines from £20,000 per employer regardless of the number of employees affected, to £20,000 per employee affected it is clear that not paying the National Minimum Living Wage will not be an advisable option.
The Stephens Scown employment team works in partnership with organisations to improve their HR practices and advise on employment issues. To discuss this or any other HR issue call 01392 210700 or employment@stephens-scown.co.uk