The National Living Wage

As the government continues to lower its welfare bill, employers will have to navigate the terminology minefield of employment regulations with even greater care. Among the National Minimum Wage and Living Wage there is now a new kid on the block – the National Living Wage effective from 1 April 2016. What does this mean for employers and what are the possible consequences?
Currently, employers are bound by the rates of National Minimum Wage (NMW) reviewed annually by the Low Pay Commission on 1 October. So, this date is to be circled red in the calendar of each and every accountancy department, because non-compliance is a criminal offence, with possible profound consequences. The NMW rates are compulsory levels of pay per hour for workers and employees and vary according to the age of the payee. For the purposes of the NMW there are three categories, each attracting different level of pay:
- under 18s -£3.87
- £3.87 - £3.87
- over 21 years-old - £6.70
Different rules apply for apprentices, and I shall come to these later.
New Kid on the Block?
To this system, the Chancellor has now introduced a new compulsory requirement and that is for employers to pay the National Living Wage (NLW). Similarly, the rate is to be reviewed annually[1], this time the date to circle red is 1 April. The NLW is both simpler and peculiar, in that it applies to workers and employees, who are 25 years and over, and so for any worker/employee under 25 years of age, the old NMW rates apply. It is useful to view the new NLW as part of the old system, simply creating a fourth age category (for helpful summary click here) or as some experts put it: a NMW supplement[2]. Viewing the NLW as broadening the current requirements rather than introducing a new one is supported by the fact that the same rules apply regarding payments and calculation of hours of workthat count towards it. National Living Wage and Living Wage – one mouthful, two different concepts
The NLW is not to be confused with the Living Wage (LW), rate of pay set by the Living Wage Foundation, initiative of the charity Citizens UK, which from 2011 calculates and annually reviews a level of pay based on the basic cost of living. Crucially, this rate is purely voluntary. The current level of LW for London is £9.40, for the rest of the UK it is £8.25, therefore still higher than the new NLW or any of the old levels of NMW. Whilst the London LW is calculated by the Greater London Authority, the UK LW is calculated by Centre for Research and Social Policy at Loughborough University, and the basis of the calculation is what households need in order to have a minimum acceptable standard of living. The precise definition of the Living Wage is ‘wage that achieves an adequate level of warmth and shelter, a healthy palatable diet, social integration and avoidance of chronic stress for earners and their dependents’, as opposed to the NLW, which is based on median earning, or in other words it is calculated by the Low Pay Commission according to what the market can bear. Despite the similarity in name, the two have little, if anything in common, as the Foundation highlights.

Equal Pay – Overarching Principle
There, of course, remains the overarching principle stemming from the Equality Act 2010 for all employees’ right to equal pay, and the employer’s duty to take action to eliminate any possible discrimination. In the light of the NLW, this may potentially be a fruitful ground for litigation; in the case of apprentices, where an apprentice under 21 years of age is currently entitled to salary £3.30 per hour (NMW rate), the same apprentice 25 years old and older will have to be paid £7.20 per hour (NLW rate). This puts older applicants for apprenticeships into obvious disadvantage and employers, where they choose the younger over the older applicant, open to accusations of discrimination. Similarly, where an employer will treat an older job applicant less favourably over younger applicant in order to avoid having to pay the NLW, this will amount to unlawful age discrimination.
Old Dressed Up as New?
Employers wanting to mitigate the impact of the NLW on their business may want to change the existing terms of employment contracts in order to absorb the increase in wages, such as convert certain allowances or non—cash benefits into basic pay, or simply reduce the benefits in the wage package. According to the National Minimum Wage Act 1998 s 23(1)(c) a worker, who qualifies for the NMW has the right not to suffer detriment because of it; by analogy and especially as the NLW may be seen as yet another category within the NMW, it would seem that changing an existing wage package in order to absorb the NLW would amount to a detriment as effectively, the worker will not gain in real terms. Consequently, this would seem to be in breach of the legislation and employers will have to consider very carefully how to implement the NLW. Whereas guaranteed non-deferred payments such as bonuses and incentive payments, time away from home allowances, or an inner city weighting allowances can be included in the calculation of the NLW, guaranteed deferred payments such as pensions, productivity or sales related bonuses cannot. Similarly, overtime, shift premia, advances of wages, redundancy payments, as well as special allowances (for working in dangerous conditions or unsocial hours) or benefits in kind cannot be included. These are the old rules on Calculating the minimum wage, which remain unchanged and apply equally to the NLW as of 1 April 2016.
The HMRC offers live webinars on the NMW and NLW, which you can view here.
Although aimed at workers, you may find the calculatora useful tool in understanding, who is entitled to the NLW.
[1] This, again is the role of the Low Pay Commission.
[2] On accessible discussion on the topic of the new National Living Wage, listen to Radio 4 podcast The Future of Work.







