With effect from 1 April 2016 the new National Living Wage (“NLW”) will be introduced, which will increase the National Minimum Wage (“NMW”) for workers aged 25 and over to £7.20 an hour. This should not be confused with the voluntary living wage calculated independently by the Living Wage Foundation, which is currently £8.25 an hour (£9.40 an hour in London).
It is the Government’s intention that the NLW will increase to £9 an hour by 2020. Increases in the NMW will take effect in April each year in future although it is not yet clear whether any increases in NMW will be applied in October this year. It would, however, be prudent to assume that increases in the NMW bands will take place in October but will exclude the NLW.
If you have not already made arrangements for this adjustment, you should be reviewing the impact on your payroll now. Employers operating a salary sacrifice arrangement should be aware that salary sacrifice cannot reduce a worker’s cash earnings below the NMW. It is not clear whether this requirement will apply to the NLW, but again it would be prudent to assume that it does.
Employers should also consider that other benefits are linked to pay, for example pension contributions, life cover, income protection and therefore the cost of these benefits will also increase. Employers should, however, beware of any thoughts of consolidating certain allowances or supplements into basic pay so that the overall remuneration package remains the same but more of it counting towards the NMW/NLW. An employee must not suffer any detriment as a result of qualifying for the NMW/NLW and any changes to benefits to satisfy the requirements could contravene this rule.
Zero hours contract workers are entitled to the NMW/NLW in the usual way.