Fast approaching the National living Wage

31 March 2016

Author: Leona Rankin
Practice Area: Employment Law


What is the NLW?

Putting it at its simplest, the National Living Wage (“NLW”) is a compulsory increase to the National Minimum Wage (“NMW”) for those workers aged 25 or over.   For those workers under the age of 25, the NMW will continue to apply.

From 1 April 2016, employers must pay workers aged 25 or over a minimum of £7.20 per hour.  This figure is set to rise to £9 by April 2020.  

By way of example, by 2020, someone aged over 25 working 35 hours a week and previously earning a minimum wage of £6.70 will see their wages increase by around £4,000 a year.

On a positive note, the NLW is set to boost wages in the UK for over 6 million people but, on the other hand, it is estimated that employers will spend £804.4 million in extra wages and staff costs.

The NLW is not to be confused with the ‘Voluntary Living Wage’ which is set by the Living Wage Foundation and is based on the cost of living in a particular location in the UK.  The Voluntary Living Wage is an informal benchmark and is not legally enforceable (unlike the NLW).

How is it calculated?

Whilst specific guidance is not yet available regarding how employers should calculate the NLW payment, we can only assume that it will be based on the same calculation as for NMW and will depend on the employee’s average hourly rate.

In the same way as for NMW, some payments will count towards assessing the NLW payment and some will not.  For example, premiums paid for overtime or shift work or allowances that are not attributable to an employee’s performance, will not be counted.

What should you do to get ready?

·  The change will take effect from 1 April 2016, so ensure that you assess how many workers are entitled to the increase.

·  Review how you currently calculate the NMW to ensure that you are compliant.

·  Review what payments you currently include in your NMW calculation.

·  Budget for the change, e.g. consider whether you need to reduce overtime and bonuses or slow recruitment.

If you have any questions, please feel free to contact the employment team at Carson McDowell.