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Laura McFadyen - National Living Wage: A Challenge for Employers
Posted on: April 30th 2016


One of the most significant initiatives affecting businesses brought in by the Chancellor, George Osborne is the introduction of a National Living Wage (NLW) for individuals over 25.

 

Present Position

The existing framework for National Minimum Wage hourly rates is set out below.

Apprentice*

£3.30

Age 16-17

£3.87

Age 18-20

£5.30

Age 21+

£6.70

*If under 19 or in first year of apprenticeship

 

The NLW

The NLW will be brought in from April 2016 and will guarantee individuals over 25 a new pay rate of £7.20 per hour.  The hourly rate is intended to rise year on year until it reaches £9 per hour in 2020.

 

Impact

Local businesses often need to operate with narrow margins to be competitive and counter rising costs. There is now a concern that a requirement to pay workers an increased rate of pay will have significant consequences for them. 

When the NLW is introduced, an employee working an average week of 35 hours will receive an additional £17.50 per week, effectively giving them an annual £910 pay rise. So, a business employing 20 people will therefore face an increase to its annual wage bill of £18,200. A business employing 100 people would face an increase of £91,000.  

Options for Employers

If an employer cannot afford the increase in wages than there are a number of options that they could consider:

  • Decrease hours?
  • Reduce the number of employees?
  • Remove paid breaks?
  • Increase the price of goods or services?

The first three of these suggestions would generally require employers to consult with employees and follow a fair and legally compliant procedure in order to introduce the changes. We therefore recommend that you seek legal advice if you are considering taking such action.  The last suggestion could, of course, have consequences for your relationship with your customers and may not even be possible, depending on the terms of any pre-existing contractual arrangements.

 

Conclusion

 

It is clear that the introduction of the National Living Wage for those over 25 will have an 

impact on many local employers.

How employers will react remains to be seen, but with at least 490 employers being “named and shamed” by the government publishing their details online for not paying the National Minimum Wage since October 2013, failing to pay the National Living Wage is not a wise option. Added to this are a package of measures to encourage payment of the National Minimum Wage and NLW coming into affect from April 2016. This includes increased fines subject to the maximum penalty of up to £20,000 for each employee not receiving the correct minimum wage rate, plus employers potentially disqualified from being directors . 

Laura McFadyen is a partner in the employment team at Stephens Scown and specialises in HR and employment law. Laura is a sub-regional representative for the Employment Lawyers Association in Exeter and a board member of the Exeter Chamber of Commerce. If you have any queries then please do contact Laura on 01392 210700, by email solicitors@stephens-scown.co.uk or via www.stephens-scown.co.uk

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