On 1st April 2016 the Government will implement the new National Living Wage for working people aged 25 years and over.
The new hourly rate will be £7.20 with the Low Pay Commission recommending future increases to as much as £9.00 by 2020. National Minimum Wage conditions will still apply to eligible workers who are under 25 years old.
The concept of a ‘living wage’ has its roots in many cultural and philosophical traditions but more recently a campaign was launched by a group of parents from London’s East End called London Citizens who were finding it difficult, despite working two or more minimum wage jobs, to earn a living and find time for family and community life.
After a number of high profile campaigns from the London Citizens, in 2005 the Greater London Authority established the Living Wage Unit to calculate the London Living Wage. This has since grown nationally - with many trade unions and community organisations taking up the baton - to the point where it has now been adopted by George Osborne and made compulsory from this April 2016.
Businesses and organisations should make sure that the new compulsory National Living Wage is clearly visible on their financial radar, and budget accordingly. Although it will only apply to those employees aged 25 and over, if affected, there will be a significant impact in terms of cost for most SMEs. In particular the new National Living Wage is likely to impact on employers of those working in care, retail, leisure, hospitality, food processing and horticulture.
What do you need to do as an employer?
From 1st April 2016, you will need to ensure that you are paying the National Living Wage to all those staff who are entitled to it. Certainly it is anticipated that the National Living Wage will be enforced as strongly as the current National Minimum Wage – with severe penalties and repercussions for those that don’t comply. You may need to check that you know who is eligible in your organisation - this can be done simply by visiting www.livingwage.gov.uk. You will also need to update your payroll processes and procedures, or if you use an external payroll bureau service, ensure that they are aware of any changes to employees pay.
At the same time you might like to take the opportunity to check that employees under 25 are earning at least the National Minimum Wage.
The broader impact of the introduction of the National Living Wage could give rise to wage pressures across the board as others seek the benefits of increased pay. However, given the pressures on small businesses, in particular to absorb the cost of the introduction of Workplace Pensions through Auto-enrolment, many employers may not, unless they are doing well, seek to offer pay awards over and above any already budgeted. Overall the introduction of the National Living Wage, unless you have a sizeable workforce entitled to the new rate, is likely to be absorbed. It is always worth considering areas around improved productivity, cost control and margin enhancement to ease the burden.