The government has recently launched its campaign to promote the introduction of the new national living wage (NLW), which will take effect from 1 April 2016. From that date workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will see a 50p increase in their minimum hourly rate, which is set to rise to £7.20 per hour.
The NLW will be enforced by HMRC alongside the national minimum wage (NMW), which they have enforced since its introduction in 1999.
The NMW is the minimum pay per hour most workers are entitled to by law. The rate to which they are entitled depends on a worker’s age and whether they are an apprentice.
The rates from 1 October 2015 are:
- £6.70 for workers 21 and over;
- £5.30 aged 18-20;
- £3.87 for those aged 16-17, who are above school leaving age but under 18; and
- £3.30 for apprentices under 19, or 19 or over who are in the first year of apprenticeship.
There are a number of people who are not entitled to the NMW, including:
- self-employed people;
- volunteers or voluntary workers;
- company directors with no employment contract; and
- family members, or people who live in the family home of the employer who undertake household tasks.
All other workers including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers must receive at least the NMW.
The compulsory national living wage (NLW) is the national rate set for people aged 25 and over. Whilst the NMW rates for those aged under 25 normally change on 1 October every year, the NLW rate for those aged 25 and over will change (where applicable) every year on 1 April. The rate for the NLW has been set at £7.20 per hour from 1 April 2016. The current NMW for those under the age of 25 will continue to apply from 1 April 2016.
The NMW is reviewed annually by the Low Pay Commission and any changes to the rate are normally introduced in October each year.
As with the NMW, the NLW will be reviewed annually by the Low Pay Commission who will recommend any future rises.
Generally all those who are covered by the NMW, and are 25 years old and over, will be covered by the NLW. These include:
- most workers and agency workers;
- casual labourers;
- agricultural workers; and
- apprentices who are aged 25 and over.
Following the recent Spanish case of Federacion de Servicios Privados del sindicato Comisiones Obreras v Tyco Integrated Security SL (Tyco) (Case C-266/14), there could potentially be NMW claims if, taking into account travelling time, a mobile worker’s hourly pay rate falls below the minimum rate. The UK professional bodies are currently assessing the impact of the European Court of Justice (ECJ) decision in this case on the NMW and further guidance is expected in due course.
The government is continuing to raise awareness to businesses to make sure they are ready to pay the new wage on 1 April 2016. As part of this, a four-step guide for businesses has been published on a new dedicated website (www.livingwage.gov.uk), which asks firms to:
- check they know who is eligible in their organisation;
- take the appropriate payroll action in advance of the commencement date;
- let employees know about their new pay rate; and
- check that staff under 25 are earning at least the right rate of NMW.
The penalty for non-payment of the NLW will be 200% of the amount owed, unless the arrears are paid within 14 days. The maximum fine for non-payment will be £20,000 per worker.
Employers need to take action over the coming weeks to ensure they are ready for the launch of the NLW on 1 April.