From April 1st, the government made it legally enforceable to pay workers aged over 25 the National Living Wage rate of £7.20 per hour. This means that those who were previously receiving the National Minimum Wage have seen a pay increase of 50p per hour.
For those who are aged under 25, they will continue to receive the National Minimum Wage. The current rate for those aged over 21 is £6.70 per hour which will be reviewed again in October of this year.
The National Living Wage is set by the Low Pay Commission who also determine the rate for the National Minimum Wage. This increase will see workers who were previously receiving the National Minimum Wage earn up to £1000 more per year before tax and national insurance contributions.
Before the current National Living Wage came into play, there was already an informal benchmark which was promoted by the Living Wage Foundation and was determined by a group of academics. On the 2nd November 2015, it was recommended that the Voluntary Living Wage should be paid at £8.25 per hour, however this isn't legally enforceable.
The law is different for apprentices who are aged over 25 and are still completing their first year, as they will continue to receive the National Apprentice rate of £3.30 per hour. Once the first year is complete, the employee is entitled to the National Living Wage rate of £7.20. It was also announced earlier this week that employers will no longer need to pay National Insurance contributions for apprentices who are under 25.
The National Living Wage is enforced in the same way as the National Minimum Wage which currently results in potential fines for those employers who fail to comply.The maximum penalty for non-payment of the National Living Wage is set at £20,000 per worker where company directors can also be disqualified for up to 15 years. A new enforcement team has also been set up by the HMRC to pursue criminal prosecutions for those companies who fail to comply.
In April 2017, the National Living Wage will increase further for those aged 25 and over. It is predicted by 2020, the National Living Wage rate should reach £9 per hour for employees.
If you have any questions regarding the National Living Wage and what it means for your business, please don’t hesitate to contact your local branch.