The national living wage is on the horizon

In the 2015 budget, the Chancellor of the Exchequer, George Osborne, outlined plans for the implementation of the national living wage from April 2016.

At the time of writing, the living wage is in place as a reference point for employers; it is a guide and compliance is not mandatory. Its calculation is based on the cost of living and is currently at £7.85 per hour, rising to £9.15 per hour for London. (This is in contrast to the national minimum wage which is mandatory and carries penalties if not complied with). At present, payment of the living wage is still seen as something new, and a ‘novelty’ – Lidl has recently hit the headlines for being the first UK supermarket to implement a minimum wage of £8.20 as recommended by the Living Wage Foundation.

However, from April 2016, the national living wage will be implemented alongside legislation that will enforce penalties for non-compliance. In many respects its introduction will create a new tier of the national minimum wage for those aged 25 and over. Although its inaugural rate of £7.20 per hour is lower than the 2015 figures, it will still be higher than the national minimum wage (which rises to £6.70 from 1 October 2015).

It is estimated that it will affect around six million people, and is therefore likely to place additional pressure on many businesses. Employers will face a significant financial penalty for failing to pay it – a minimum of £100 (rising to a maximum of £20,000) per worker, alongside the penalty of having to pay double the amount owed in arrears.

Despite the government attempting to help ease the pressure by offsetting the cost through other measures (such as changes to corporation tax rates), it is still estimated that as many as 60,000 jobs may be cut as a result of the wage increase (Office for Budget Responsibility). For more information on the implementation process contact our employment team.