As of 1st April the National Living Wage (NLW) came into force and put an obligation on employers to pay workers aged 25 and over at least £7.20 per hour, a 70p increase on the previous minimum wage requirement.
That means about 1.3million worker over 25 will benefit immediately from a pay rise, which is great news. Further increases to the NLW are due, with a rise to more than £9 an hour by 2020, which would affect an estimated 9million workers, whether part-time of full time.
The downside, however, is that many large and small businesses will have their profits hit badly, with the Office for Budgetary Responsibility warning that 60,000 jobs will be lost as a direct result. The Resolution Foundation has estimated that total wage bill across Britain is set to rise by £4.5billion (or 0.6%) following the introduction of NLW.
The introduction of the NLW will make it too expensive for some business, in particular small businesses, to take on low-skilled works. Sectors that rely heavily on staffing such as cleaning, manned guarding, retail and hospitality will face a further squeeze on margins, or massive job losses, with the British Retail Consortium claiming that as many as 900,000 jobs could be lost as as result of the NLW.
A word of warning to employers who don’t implement the NLW – from 1st April penalties for non-payment of the NLW will be doubled from 100% of the money owed to 200%. Employers found guilty can be disqualified as a company director for up to 15 years, and the maximum penalty will remain at £20,000 per worker.
Is this the same as the Living Wage?
The NLW is not to be confused with the Living Wage, which is independently calculated by the Living Wage Foundation based on the basic costs of living in the UK. The rate is voluntary and is currently set higher than the NLW at £9.40 an hour in London and £8.25 an hour outside the capital.