The Government’s new National Living Wage came into force on the 1st April, 2016, meaning that employers are now obliged by law to pay workers over the age of twenty-five a minimum of £7.20 per hour.
The new rate is a 7% rise on the previous minimum wage of £6.70 per hour, and up to 4.5 million of the UK’s lowest paid workers are expected to benefit from a significant boost in their annual take-home pay.
The new figure was announced in Chancellor George Osborne’s summer budget last year, with the Government calling it ‘a step up for Britain’ as the country continues to steadily recover from the financial crash of 2007. With women and part-time workers most likely to see their wages increase as a result of the new legislation, the Chancellor expects up to 6 million employees to have benefited by 2020.
In order to conform with the changes to the National Living Wage, employers are expected to check which of their workers are eligible and to take appropriate payroll action. The Government has also advised employers to check that members of staff aged under twenty-five are being paid the appropriate National Minimum Wage.
While the new National Living Wage has been broadly welcomed, the Living Wage Foundation has recommended a higher figure of £9.40 for people working in London and £8.25 for those employed outside the Capital. Speaking on behalf of the Resolution Foundation, director Torsten Bell said the Government would need to work closely with businesses to implement the new rules and end what he called ‘Britain’s reliance on low pay, low productivity ways of working’.
Charles Cotton, performance and reward adviser at HR body the CIPD, also sounded a note of caution. Warning that the introduction of the National Living Wage would increase costs for businesses nationwide, Mr Cotton expressed concerns that the new pay terms could, in fact, force some employers to make substantial job cuts. Workers in the retail and hospitality sectors could be most at risk, he added, with redundancies and cuts to benefits a very real possibility.
With ample warning that this increase in the Living Wage was due to come into effect, some of the UK’s largest employers had already increased their minimum hourly pay to £7.20. Furniture giant Ikea increased its hourly wages in July 2015, with supermarket chains Lidl and Morrisons following suit last September.
While the change applicable from 1st April only benefits those workers who are aged twenty-five and over, the minimum wage for those in the 21-24 age bracket is also set to increase this October, rising to £6.95 per hour.
An apprenticeship levy is also due to come into force in April next year, adding an extra 0.5% onto the wage bills of the country’s largest employers. These changes, coupled with the increase in the National Living Wage, mean that businesses across all sectors will need to carry out a fine balancing act over the next eighteen months.