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By David Chalmers, Partner

The “Living Wage” is a measure of income considered necessary for an acceptable standard of living. As at 31 October 2015, the campaign group the Living Wage Foundation, calculated the UK living wage at £8.25 per hour and the London living wage at £9.40 per hour. The concept of a living wage has received a great deal of publicity in recent years, with many employers choosing to go beyond legal minimums and remunerating low paid staff by reference to these rates.

The “National Minimum Wage”, first introduced in 1998 is a legal requirement to pay wages at a minimum level. The legal requirements have recently been consolidated in the National Minimum Wages Regulations 2015 (“2015 Regulations”). There are a range of different rates prescribed on the basis of a workers age. The last increase in October 2015, prescribed as follows:

Apprentice rate: £3.30 per hour
16 to 17 years: £3.87 per hour
18 to 20 years: £5.30 per hour
Over 21 years: £6.70 per hour

The “National Living Wage”, which is enacted by the National Minimum Wage (Amendment) Regulations 2016, comes into force on 1 April 2016. It essentially provides for a new minimum wage of £7.20 for workers over the age of 25. None of the other age bands are affected. It effectively creates a new age band for workers aged between 21 to 24 years. Accordingly from 1 April the minimum rates of pay will be as follows:

Apprentice rate: £3.30 per hour
16 to 17 years: £3.87 per hour
18 to 20 years: £5.30 per hour
21 to 24 years: £6.70 per hour
Over 25 years: £7.20 per hour

The “National Living Wage” is in reality a rebranding of the National Minimum Wage for the oldest age group. There are no new rules for calculation. The 2015 Regulations apply.

Time to Review

Whilst the concept of a National Living Wage is presentational, the actual increase for workers aged over 25 years is substantial. An increase of £0.50 per hour represents an increase of circa 7.5%, at a time when inflation is at record lows and locally, many small businesses are feeling the knock on effects of the decrease in the oil price. Employers can expect a great deal of publicity when the increase becomes effective. The UK Government and many other organisations now provide easy to use online calculators to allow employees to check whether they are paid the minimum rate. Where remuneration is based on more than a basic rate e.g. a mix of a basic rate (which is below the minimum rate) and other qualifying performance based payments employers should review remuneration levels to ensure they do not find themselves falling below the substantially increased minimum rate in any particular pay reference period.

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