Member Article

National Living Wage - what employers need to know

As the enforcement of the new National Living Wage (NLW) draws closer, Alistair Smith, disputes and employment team associate at Gordon Brown Law Firm LLP (GBLF), shares an insight into what these changes mean for employers, and the steps that need to be taken ahead of this.

Alistair said: “The National Living Wage is a new compulsory rate of pay to be introduced from 01 April 2016 for workers aged 25-years-old and above. It is set at £7.20 per hour and applies to all businesses, regardless of their size.

“The National Minimum Wage (NMW) will stay in place, with existing bands and categories of pay for certain workers remaining, and the new NLW acting as a bolt on to this, introducing an additional tier rate of pay for those workers who are aged 25-years-old and over. The new compulsory pay structure will look as follows:

NLW for workers aged 25-years-old and over - £7.20 per hour NMW for workers aged 21 – 24-years-old - £6.70 per hour NMW for workers aged 18 – 20-years-old - £5.30 per hour NMW for workers aged 16 – 17-years-old - £3.87 per hour Apprenticeship rate - £3.30 per hour

“Any employer who fails to pay at the correct new rate could find themselves subject to claims from employees, proceedings from HMRC and could be prosecuted under criminal law, potentially facing significant fines, in addition to having to make up any back-pay.

“Ahead of the changes, the first step an employer should take is to analyse its workforce, considering who will be effected by this increase and what this means to the business’ finances. For a full time employee aged 25-years-old and over, the potential increase in pay of 50p per hour, taking the employee’s wage to NLW, brings about an increased overhead of approximately £1,200 per annum per employee effected.

“There are also wider considerations, such as how this will affect different pay grades within the business. Certain NLW workers may now be paid at the same or close to their supervisor’s rate of pay, so there may need to be a degree of adjustment to certain pay grades to promote fairness and to recognise seniority and experience. This exercise could further affect the overall wage bill for a business, especially when increased pension contributions are taken into account.

“Having established the likely increase in cost to the business, some employers are adopting a wait and see approach, since certain sectors are of the view that the increased wage may bring about increased productivity which could negate the increased cost. However I would advise that a financial plan is put into place, with businesses taking a more structured and sustainable approach.”

For assistance and guidance ahead of the introduction of the NLW, please contact Alistair Smith at Gordon Brown Law Firm LLP by emailing alistair.smith@gblf.co.uk or calling 0191 389 5121.

This was posted in Bdaily's Members' News section by Gordon Brown Law Firm .