Are you Prepared for the National Living Wage?

BlogHR Advice Posted: Wednesday 23rd March 2016 by

Next month, the new National Living Wage becomes law. Every employee aged at least 25 and not in the first year of an apprenticeship will be legally entitled to a minimum hourly rate of £7.20. Employers will have to make sure that they are paying all entitled employees at least the correct amount from 1st April because the government has made it clear that they intend to see that the Act is both policed and enforced.

One of the first things every employer should do is make sure that their system for managing employee records is robust and that the records themselves are up-to-date. We don’t (who does?) endorse every single thing government says, but in this case their four recommended steps should be followed:

  1. Check that you know who in your organisation is eligible. There is guidance here on the status of different types of employee
  2. Take whatever action is necessary, given the way in which your payroll is handled, to ensure that the payroll is correct at April 1st
  3. Advise all affected staff members of their new pay rate
  4. Check that staff under 25 are earning at least the right National Minimum Wage rate.

We also suggest a close look at your employee records to ensure a fool-proof system is in place to alert you when an employee approaches his or her 25th birthday early enough to ensure that that employee is paid the correct rate from their 25th birthday onwards. If you don’t, you’ll be breaking the law.

If you have apprentices, you should also check those records. The National Living Wage does not apply to apprentices in their first year of apprenticeship, but it does apply from the very first day of the second apprenticeship year.

Casual workers aged 25 or over are also entitled to receive the National Living Wage; tips and gratuities are not included in calculating an employee’s wages. This is important in, for example, the hospitality industry, where there are significant numbers of low paid employees, who may receive generous tips from satisfied customers. They don’t count for this purpose. If someone is being paid, for example, £260 for a 40-hour week, this has to increase on 1st April 2016 to £288 a week. The fact that the employee may receive £100 in tips in a typical week is not part of this calculation.

Many ideas we have seen mooted for dealing with these additional costs are counter-productive. Stop paying bonuses; don’t replace people who leave; cut employees’ hours; employ younger staff – all have been suggested and no doubt many will be tried, but in the long run there can be no alternative to improving efficiency and/or passing on the additional cost to the customer. Ignoring the Act is not an option; there is a maximum fine of £20,000 per underpaid employee and a possible 15-year ban from holding a directorship.

If you need help and support to understand how the National Living Wage could affect your business, and help to put systems in place to remain within the law then get in touch; the expert HR team at Human Results are here to help.

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