The National Wage – What do I need to know?

Employers should be aware that the National Living Wage comes into effect on 1 April 2016. This requires that workers aged 25 and over be paid £7.20 per hour. The Government have estimated that this will equate to a rise of £910 per annum for a full-time worker.

The National Living Wage applies to workers aged 25 and above whilst the National Minimum Wage will continue to apply to other workers and apprentices. For workers aged 21 – 24 years, the National Minimum Wage remains at £6.70 per hour, effective from October 2015.

There is no choice for employers as to whether or not they pay this National Living Wage – it is a statutory obligation, effective from 1 April 2016. Should an employer fail to pay its employees the National Living Wage, the employees may take proceedings at the Industrial Tribunal claiming an unlawful deduction of wages. The Tribunal is likely to award to them the outstanding arrears of wages being the difference between what the employer was paying the employees and the £7.20 per hour required. In addition, an employer should be aware that it is automatically unfair to dismiss an employee simply because they become eligible for the National Living Wage. There is no qualifying period of employment required in order to issue proceedings alleging dismissal on this ground. Also, the employer should ensure that its employees who become eligible for the National Living Wage do not suffer any detriment as a result of their entitlement as this too would allow them to issue proceedings to the Industrial Tribunal.

Not only do the employees have rights to issue proceedings at the Industrial Tribunal, the employer should also be aware that HMRC can inspect its records at any time, either of their own volition or following a complaint to them by workers. HMRC can inspect and take copies of records etc. They also have the power to issue penalties whereby an employer will be required to pay any outstanding arrears of the National Living Wage, and may face a financial penalty. Regulations introducing the National Living Wage also increased the financial penalties available which means the employer could, in addition to being required to pay the outstanding arrears, face a financial penalty which will require it to pay twice the underpayment of wages as a fine.

The implications of the underpayment can also escalate as the Government does have the ability to “name and shame” by publishing the name of the employers who have failed to meet their statutory obligations on payment of minimum wages.

It is suggested therefore that employers undertake a review of staff to ensure that those who are eligible on 1 April 2016 receive the full National Living Wage of £7.20 per hour. The employer may also wish to undertake a consultation exercise or meetings with staff to advise them of the wage increase and implications for the business.

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While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.