From today (1st April 2016), millions of workers over the age of 25 will receive the benefits of their minimum pay increasing. Whilst the current rates of the National Minimum Wage are remaining the same, a new category called the National Living Wage has been created, entitling those over the age of 25 to £7.20 an hour.
Is the National Living Wage the same as the Living Wage?
Given its similar titling, the new National Living Wage could easily be confused with The Living Wage, but it is important to note that the two are entirely unconnected. The National Living Wage is simply a new band of the Minimum Wage, which is calculated based on an estimation of what the market can bear.
The Living Wage on the other hand is a figure set independently by the Living Wage Foundation, which currently stands at £8.25 for the majority of the UK, and £9.40 rate for those living in London. Unlike the National Living Wage, the Living Wage is calculated annually based on the cost of living. Businesses are under no obligation to pay the Living Wage, but the Living Wage Foundation reports that businesses who do volunteer to pay these rates receive many benefits, such as increased productivity from their staff and a reduction in absenteeism.
How much pay are my employees entitled to?
The table to the right illustrates the new minimum pay that all employees must be paid as of 1st April 2016. All of the categories and amounts have remained the same as they were prior to today, except there has been the creation of the new 25+ age group, who will now receive the National Living Wage.
The Apprentice rate applies to all apprentices who are aged between 16 and 18, and any apprentice over the age of 19 who is in their first year of their apprenticeship. All other apprentices are entitled to receive the minimum for their age bracket.
How will businesses be affected by the National Living Wage?
Minal Backhouse of Backhouse Solicitors has predicted that the National Living Wage is most likely to have the greatest impact in the retail, hospitality and healthcare sectors. Larger retailers with thousands of employees will certainly feel the impact; Lord Wolfson, the Chief Executive of Next, has estimated that their wage bill will increase by £27million annually.
Whilst larger retailers may be able to absorb these costs by perhaps marginally increasing their prices, this may not be a suitable solution for smaller businesses who already struggle to compete on price with multinationals. The Office for Budget Responsibility has predicted that tens of thousands of workers could lose their jobs as employers try to compensate for the extra wage costs.
The Association of Convenience Stores, which represents over 33,500 local shops, has said its members were likely to have to reduce the number of hours that their employees work, cancel investment plans, and business owners would find themselves working more hours in their business themselves.
Small cafés and restaurants may be hit particularly hard by the changes; tips and service charges, whether they are paid through payroll or given at the discretion of the customer, cannot be counted towards the employee’s National Minimum Wage or the new National Living Wage.
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