Are you ready for the Living Wage?

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12 Jan 2016

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The eagerly anticipated introduction of a new, and compulsory, National Living Wage (NLW) has thrown many employers into a state of frenzy given that it will entitle all employees aged 25 and over and only paid the National Minimum Wage (NMW) a wage bump of 50p an hour with from April 2016. This new National Living wage should be distinguished from the existing Living wage (as supported by the Living Wage Foundation) which is voluntary and set at £9.15 per hour in London and £7.85 elsewhere. The biggest challenge for many employers affected by this change is how they will fund the increase. For some organisations they will pass the costs on to customers however this might not always be possible. Minimum wage compliance is calculated over a reference period and the ability to “spread” earnings out can result in employer who appears to be in breach actually being able to meet their legal obligations. Where this is not the case employers may seek to reduce hours (or alternatively, amend pay rates such as overtime and shift premium), reduce staff or, at its most extreme, close down a business. As the introduction of the NLW draws closer employers are running out of time to make changes to individuals’ terms meaning that they will either look at rushing changes through or simply have to absorb the increase in costs. Employers should be mindful that if they seek to make changes to an employee contract there are procedural requirements dictated by law. The Government has also announced tough new measures to ensure compliance with the National Minimum Wage and National Living Wage which include increasing the penalty for underpayment from 100% of the underpayment up to 200%. Although no indication as to when this could happen has been confirmed. Need pay advice or information? Why not get in touch with our Reward experts. Find out more here.

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