New National Living Wage from 1 April 2016
From 1 April 16, a new National Living Wage will come into effect. The new Living Wage, set at £7.20 per hour, will be compulsory to all workers aged 25 years and above. This increase is part of an overall plan by the Chancellor that a compulsory national living wage of £9.00 per hour will be in existence by 2020.
In addition, the financial penalty payable by employers who underpay minimum wage rates will increase from 100% to 200% of the underpayment due to each worker. However, this will be halved to 100% if the fine is paid within 14 days.
Research shows that the higher wage rate will have the greatest impact in the retail and hospitality sector.
The question on many employers’ lips now is how to fund this increase. Reports suggest that there are three common coping mechanisms:
- Accept lower profits
- Reduce overtime and bonuses
- Reduce employee numbers through redundancy and/or slower recruitment
Other facts employers need to know include:
- Living Wage does not apply to self-employed
- Tips cannot be counted towards the Living Wage
- Living wage will apply regardless of geographical location, it is not just a London initiative.
So regardless of how you will fund the new wage bill it is important that you make the changes come 1 April. Failure to do so could see your company facing hefty fines and being named and shamed. In October 2015 HMRC named 113 employers that hadn’t been paying workers fairly. As well as many small businesses they included fashion chain Monsoon Accessorize and outlets of sandwich chain Subway.
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