George Osborne’s last budget heralded a ‘new’ living wage of £9 per hour by 2020, but what does this actually mean for businesses. While, at this time, we have no idea by what amount or when incremental changes are going to take place we do know that inception will be in April 2016 just 6 months after the National Minimum Wage increase.
Essentially the Living Wage is just another tier in the National Minimum Wage legislation. Previously anyone over 21 years of age got the top tier, now a new tier has been added for over 25s.
That is the first important point, the new rate is only available to employees that are over 25 years of age, and those who are 21 to 24 will still get the National Minimum Wage.
How much will it cost?
The National Minimum Wage increases each October and the new top rate this October 2015 is £6.70 up from the current rate of £6.50, an increase of 20p per hour. However in April 2016 there will be another increase of 50p for anyone over 25 taking their wage to £7.20 per hour. Effectively your staff will get two pay rises in one year, 20p in October and another 50p in April, a 70p per hour increase overall.
What does this mean in practice?
All employers need to ensure that they are paying the Living wage to anyone who is 25 or over, this may mean that you need to change contracts especially where they state that employees will be paid the NMW. It could also mean that employees exceed the threshold for Auto Enrolment, the new pension scheme.
Some commentators have suggested that having to pay the living wage may result in employers choosing younger workers and not keeping them when they reach 25, however this would be a particularly dangerous when one considers the age discrimination protection included in the Equality Act 2010.
Of course, if you already pay above the living wage there is unlikely to be anything that you need to worry about.
If you have any queries about the Living Wage, the National Minimum Wage or any other employment issues please call our experts on 0845 070 0505 or the head office number on 0115 988 6211.