As you will have no doubt seen in newspaper headlines and Government advertising billboards, which seems to be the way they get these important changes across, there will be a “new” rate of pay, which is to be known as the National Living Wage.
In April the governments new national living wage will become law. There are a number of elements that have to be included to calculate this new change, including tax and national insurance contributions, wage advances or loans and even the type of work your employee does and your method of payment to them.
There are currently four different hourly rates of National Minimum Wage for different categories of worker:
- Standard rate for workers aged 21 or over: £6.70
- Workers aged between 18 and 20 inclusive: £5.30
- Young workers rate: £3.87
- Apprentice rate: £3.30
From the 1 April this year, a 5th category of worker will be introduced. If you are working and are aged 25 or over and not in the first year of an apprenticeship, you’ll legally be entitled to at least 7.20 per hour. That’s an extra fifty pence per hour in your pocket. Chancellor George Osborne has said, “The new National Living Wage is an essential part of building the higher wage, lower welfare, lower tax society that Britain needs.” The government are determined to increase this each year and its expected by 2020 it is to be in excess of £9 per hour.
The National Living Wage is basically a change to what is already known as the National Minimum Wage. With this being the case it’s important not confuse this change to a similarity in what is known as the Living Wage.
The living wage recommends that an employer should pay employees what they class as a suitable ‘living wage’ this means that an employee should be able to live on this wage taking into account the cost of living and inflation rates. The current Living Wage rates are £8.25 per hour for workers across the U.K., with a higher rate of £9.40 for those in London. Business who pay these rates to employers are able to class themselves as ‘’Living Wage Employers’.
I can understand these different options can be rather confusing for employers, as they both bear very similar names, the important one to focus on is the National Living Wage, otherwise known as NWL.
It is against the law for an employer to pay below either the national minimum wage or the national living wage (when it comes into force in April). If you’re an employer, you’ll need to make sure you’re paying your staff correctly from 1st April 2016, as the National Living Wage will be enforced as strongly as the current National Minimum Wage. This new change is going to be enforced strongly by the HMRC and employers can be subject to fines of up to £20,000 for each employee who has been paid incorrectly. With these fines being of substantial monetary value, it is also a criminal offence not to pay the National Minimum Wage.
With employees from April getting this extra 50 pence in their back pockets, although it doesn’t sound like much this higher rate of pay will have an impact on businesses. It is estimated that these costs could be in excess of £1.1 billion in the first year alone. As an employer it is important to check and ensure that your records and payroll systems are up to date, but also communicate this change to employees, so that any worker who is entitled to a higher rate of pay receives it from 1 April 2016.
If you have any questions about the National Living Wage and what it might mean for you, please get in touch with a member of our team, you can contact us by calling one of our offices which are found on our website www.chrysalispayroll.co.uk or emailing us on info@chrysalisparoll.co.uk
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