Minimul Wage

Understanding the National Living Wage

Fair pay for a fair day’s work is the bedrock of a good relationship between employers and employees. The National Minimum Wage (NMW) has ensured that everyone gets a minimum amount per hour, which is legally enforceable.

But in 2016, the government introduced the new National Living Wage (NLW), which is mandatory for workers aged 25 and above, and is currently set at £7.50. For workers aged under 25, though, the NLW is not mandatory, and employers can choose either to pay them more, or to stick to the mandatory NMW. It is important to remember that the National Minimum Wage is mandatory across the board, regardless of an employee’s age.

What happens if an employer refuses to pay?

As the NMW is mandatory for everyone, an employer can be taken to court by HMRC if they do not comply. The penalties are high. Non-payment of the mandatory NLW for someone aged over 25 can incur a penalty of 200% of the amount owed unless the arrears are paid within 14 days. The maximum fine for non-payment is up to £20,000 per worker, and employers who fail to comply can also be banned from taking up any position as a company director for up to 15 years. This level of penalty shows just how seriously fair pay is regarded by the government and HMRC.

Is it just applicable to the private sector?

The NLW applies to both private and public sector workers, ensuring that everyone has the chance to earn a living wage. In an age of austerity and frozen pay packets, that extra pay can make all the difference to cash-strapped workers or those ‘just about managing’.

The NLW has also had other positive effects since it was introduced. The Living Wage Foundation fast discovered that not only did it make life a lot easier for workers who had been struggling to cope on the NMW, but it also benefitted employers too, by improving recruitment and retention within businesses, especially larger organisations. It also seemed to reduced absenteeism (in some cases by up to 25%), and improved morale as workers finally felt they were getting a fair wage.

Full and part-time workers benefits?

The NLW (for those over 25) applies to both full and part-time positions. Hourly rates are the traditional method of payment in the UK, so both the NMW and the NLW have a direct impact on a person’s earnings. It also helps to ensure a uniformity of pay levels between workers and is going a long way to removing the gender pay gap that has been a problem in the UK workforce for many years. Now, women and men are earning the same amount for the same jobs, making it fairer for everyone. The same principles apply to disabled workers too, again removing some of the pay gap issues that had blighted the disabled workforce in the UK for years.

For younger workers, there is still some way to go before the NLW is implemented for anyone under the age of 25, and the recent Brexit vote may also have put the brakes on that situation changing anytime soon.

Speaking of which…

How will Brexit affect worker’s wages in the future? Currently, legal experts are of the opinion that, thanks to the ‘copy/paste’ nature of the Great Repeal Bill (where all EU legislation is being copied verbatim into UK law), there should not be any major changes concerning pay. Therefore, for the foreseeable future, workers will have the right to either a National Minimum or a National Living Wage, depending on their age.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues
If you have any enquiries regarding points raised in the article, contact Mercers on [email protected] or 01491572138.

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