What is the National Living Wage?
The National Living Wage has been a ‘hot topic’ recently, here is a simplified account of it for you:
National Minimum Wage
Let’s just remind ourselves of the National Minimum Wage first so we can understand the National Living Wage in relation to it.
Employers currently have a legal obligation to pay the National Minimum Wage (NMW) to workers / employees and it is unlawful not to do so. The NMW rates vary dependant on age and are effective to those who are no longer required to attend education right through to adults and those rates vary from £3.30 per hour to £6.70 per hour.
National Living Wage
The National Living Wage (NLW) is effective from 6th April 2016 and applies to workers / employees aged 25 and over, the rate as recommended by the Low Pay Commission is currently £7.20, this is expected to rise to £9.00 per hour by 2020.
This change will amount to an annual increase of £910.00 for a full time worker/employee.
Employers should be careful not to confuse this with the ‘living wage rate’ used by the Living Wage Foundation which currently has rates of £9.15 (London) and £7.85 (the rest of the UK).
Qualifying employers were able to claim an Employment Allowance from April 2014, this meant that they could reduced their National Insurance Contributions by up to £2000.00. This Employment Allowance will increase to £3000.00 from April 2016.
The benefit here would be that employers could employ 4 full time employees on the NLW and not have to pay any NI contributions.
- Identify which employees currently receive the NMW in your business
- Identify who meet the minimum age (25) both now and in April 2016
- Review your budgets, including NI contributions in light of the upcoming increased employment allowance
- Prepare (over the next few months) correspondence to confirm the wage increase to eligible employees
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