Author: Mike Tremeer
On 1 April 2016 the Conservative Government introduced a new minimum rate of pay that applies to all UK workers aged 25 and over. Called the National Living Wage (NLW), it requires that eligible employees are paid a minimum of £7.20 per hour. That is an increase of 50 pence per hour on the National Minimum Wage (NMW) of £6.70 that previously applied (and still applies to workers aged under 25), and so will result in increased employer costs of up to 7.5% for each eligible worker.
It is reported by the Department for Business, Innovation & Skills (BIS) that this represents the largest annual increase in the national minimum wage made by any G7 country since 2009, and that it will benefit more than 1 million UK workers. BIS also claims that those eligible for the new rate may see their pay increase by up to £900 each year.
It is expected that employers in the retail industry will be among those most affected by the new rate. Cinema, pub, bar, restaurant and shop workers are often paid at or around NMW rates, and those aged 25 and over are now entitled to the NLW.
At first glance, the NLW seems to be good news for qualifying workers. However, many commentators have warned that its introduction may result in employers seeking to save costs elsewhere – such as in training budgets, annual salary reviews and other employee benefits and perks. If employers do seek to recover the increased costs in this way, the introduction of the NLW could even mean that workers aged under 25 may experience a decrease in their overall package in order to fund the increased wage that their older colleagues are now entitled to receive.
The risk of creating disharmony within a workforce does not end there; two workers carrying out the same job and tasks may now receive different rates of pay due to their age. A worker aged under 25 who has been in the role for a number of years may find himself being paid less than a new starter with no prior experience who is aged over 25.
Employers that fail to pay the NMW or NLW can face financial penalties, fines and orders to repay arrears of wages to underpaid workers. Criminal sanctions can also apply to individual directors who approve of or consent to any breaches.
In addition, in October 2013 BIS began a practice of “naming and shaming” employers that fail to comply with their obligations to pay workers the NMW. Large retail employers including Monsoon Accessorize, French Connection, Subway and the Spirit Pub Company have already found themselves receiving unwelcome publicity after failing to comply with their obligations.
It can be expected that the introduction of the NLW will provide further ammunition for authorities that are responsible for investigating and acting against employers who fail to comply with their minimum wage legal obligations. Employers would be well advised to carry out an audit of their pay structures now to avoid the risk of adverse publicity and penalties that might follow otherwise.
Mike Tremeer, Senior Associate, Fladgate LLP (firstname.lastname@example.org)