The National Living Wage – what small firms need to know

Alongside auto enrolment, one of the biggest changes employers are grappling with this year is the introduction of the new National Living Wage.

Like auto enrolment, it’s unavoidable and affects companies of all sizes. Here’s all you need to know.

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From 1 April 2016, the living wage requires enterprises to pay those aged over 25 a minimum of £7.20 an hour – 50p more than the current National Minimum Wage (£6.70). Then, the rate increases incrementally to £9 an hour by 2020. Despite its name, it’s not linked to the cost of living or the Living Wage campaign.

This means workers aged 25 plus who are currently earning at the top band of minimum wage will receive almost an extra £1,000 per year.

Workers under the age of 25 will be entitled to the National Minimum Wage, which is also going up for all age groups and apprentices from 1 October 2016. Workers aged 21 to 24 will be entitled to at least £6.95 an hour, 18 to 20-year-olds £5.55 an hour, under-18s £4 and apprentices £3.40.

The rules will be strictly enforced as failure to pay a worker what they are legally entitled is a criminal offence and can result in being fined and named and shamed by HM Revenue and Customs – definitely best avoided!

Analysis by the Resolution Foundation shows 6 million workers, or 23% of all employees stand to benefit by 2020. The biggest impact will be felt by smaller firms who on average could see their total wage bill increase by 1.5% by 2020 while medium-sized firms may only see salary costs grow on average by 0.6 per cent over the same period.



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