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The National Living Wage from April 2016

In the Summer Budget, the Government announced that a new compulsory ‘National Living Wage’ will be introduced in April 2016 for workers aged 25 and over. Both part time and full time workers will be entitled to the National Living Wage.

What is the National Living Wage?

The National Living Wage is the hourly rate of pay set by the Government to be the minimum that a worker needs to earn to cover the basic cost of living.

The new compulsory National Living Wage will ensure everyone aged 25 and over receives £7.20 per hour from April 2016, with plans for this to rise to £9.00 per hour by the year 2020. Future rises will be recommended by the Low Pay Commission.

It will effectively replace the existing National Minimum Wage for everyone aged 25 and above.

Please note, that this new National Living Wage rate is not connected to the rates used by the ‘Living Wage Foundation’ which are voluntary rates set independently for London and the rest of the UK to reflect the basic cost of living.

What is the current system?

At the moment, the Government dictate the National Minimum Wage, which is currently £6.50 per hour and applies to everyone aged 21 and over.

In March 2015, it was announced this will increase to £6.70 in October 2015.

The introduction of the National Living Wage will not affect people aged 24 and under currently being paid the National Minimum Wage.

How is the National Living Wage different to the National Minimum Wage?

The National Minimum Wage will remain in place, and the compulsory National Living Wage will be a top-up for workers aged 25 and over.

Therefore, for example, if an employee aged over 25 is currently paid £6.70 per hour, the introduction of the National Living Wage will see their hourly rate increase by 50p per hour to £7.20 per hour in April 2016.

So what should you be doing to prepare for the introduction of the National Living Wage?

The new National Living Wage comes into force in April 2016 so, in preparation, it would be prudent to analyse staff data, the number of over 25s currently on your payroll and their existing hourly rates to assess the need for any revisions in pay rates.

If any staff over 25 are currently paid less than £7.20 per hour then you will need to ensure that you have accounted for any necessary increases for existing staff or rates offered to new recruits when looking at budgeting and planning for April 2016 and beyond.