Changes to the National Minimum and Living Wage – What are the benefits and consequences?

The National Living Wage was introduced in April 2016, which in effect created a higher minimum wage of £7.20 per hour for workers aged 25 and older. A year on, following further increases to the National Living and Minimum Wages in April 2017, what difference has this increase made to employers and employees?

The National Living Wage, and the Living Wage – what’s the difference?

The National Living Wage is different to the voluntary ‘Living Wage’, which is set every year by the Living Wage Foundation (a charitable initiative). The voluntary Living Wage is based on the amount that an individual in full time employment would need to earn in order to afford a decent standard of living. It is up to employers whether or not they agree to pay the voluntary Living Wage. The National Living Wage, on the other hand, is a mandatory requirement and penalties will be imposed to those employers who do not comply (see below).

What was the intended effect of the National Living Wage, and has this been realised?

When the new National Living Wage was introduced in Summer 2015 by the then Chancellor George Osborne, it was framed as a ‘boost for workers’ which would result in pay rises for an estimated 2.5 million people.

So have the intended outcomes been achieved so far? According to the Financial Times, in 2016 a quarter of all employees aged 25 or over had a pay increase due to the introduction of the National Living Wage. The impact was not just felt by those directly affected by this increase with many employers appearing to increase the salaries of other workers in order to maintain distinctions between roles. It was initially feared that the increase could lead to job losses but, as at December 2016, the Low Pay Commission found that although employment and hours had fallen in some low-paying industries, such as cleaning and social care, there had been a strong increase in others, such as textiles and employment agencies. The early indications were that there had not been a significant change in unemployment figures (which as at November 2016 were at an 11 year low of 4.8%). However, the Commission did warn that it was too early to draw conclusions.

The National Living Wage and the Care Sector

The Low Pay Commission’s research initially suggested that the introduction of the National Living Wage had significant consequences for the care sector with the percentage of care home assistants paid below £7.20 falling from 55% to 5% after April 2016. This reduction does not appear to have caused the anticipated loss of employment, nor was there evidence of increases in charges, reduced profits or higher risk of closures. However, the recent ‘Mencap’ case (covered in our earlier news flash, ‘Sleep-ins – should they form a part of the National Minimum Wage calculation?’ 24 April 2017) suggest that the National Living Wage is exacerbating the impact on care providers.

Recent figures published by the Government in February 2017, have indicated that many employers continue to not pay the required National Minimum or Living Wage and employers failing to pay the required Living Wage have been ‘named and shamed’ by the Government, for the first time.

So what is required of employers?

From 1 April 2017, employers are required to pay workers (if they are eligible) as follows:

  • 25 years or older:         £7.50 per hour
  • 21- 24 years:                £7.05 per hour
  • 18-20 years:                 £5.60 per hour
  • 16-17 years:                 £4.05 per hour
  • Apprentices under 19:  £3.50 per hour
    (or over 19 but in their first
    year of apprenticeship)

As ACAS state: ‘it is against the law for employers to pay workers less than the National Minimum Wage or to falsify payment records’. Ultimately, a worker who suspects that the employer is not adhering to the relevant requirements, may complain to HMRC who can investigate, and send a notice of arrears to the employer ‘plus a penalty for not paying the correct rate of pay.’ They may also bring an Employment Tribunal claim for the arrears of pay.

If an employer fails to pay the National Living Wage when they are required to do so, the penalty for non payment will be 200% of the amount owed, although this is not due if the arrears are paid within 14 days. The maximum fine is £20,000.00 per worker, however, should an employer fail to pay, they could “be banned from being a company director for up to 15 years.’