The difference between National Living Wage and Living Wage

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24 Nov 2016

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As an employer, it is important to understand the difference between the National Living Wage and the Living Wage. Clare Parkinson, Reward Business Manager at Croner explains.

Legal v Voluntary

The National Living Wage (NLW) is a requirement by law. Introduced in April 2016, it requires employers to pay a minimum wage for workers over the age of 25, which is currently set at £7.20 per hour, but will rise to £7.50 per hour in April 2017, as stated in the Autumn Statement. The Living Wage (LW), however, is set by the Living Wage Foundation and voluntarily adopted by employers who wish to pay their staff over and above the legal minimum. It is set every year by independent academics, and is influenced by factors such as accommodation, travel, food, holidays, and extras (such as birthday presents). The LW covers workers aged 18 and over, with two rates: one for London Living at £9.75 per hour, and one for the remainder of the country, which is £8.45 per hour. To date, over 2,500 employers have voluntarily signed up to the LW, with a spectrum of enticing reasons for doing so.

Risks of not paying the minimum amounts

It is against the law for employers to pay workers less than the applicable National Minimum or National Living Wage rate. If an employer doesn’t pay the right rate then the worker(s) can make a formal grievance against their employer. This complaint will be made to HMRC who will undertake an investigation. If HMRC find that an employer hasn't paid at least the National Minimum Wage, they can send a notice of arrears plus a penalty for not paying the correct rate of pay to the worker. With the introduction of the National Living Wage, the penalty for non-payment is 200% of the amount owed, unless the arrears are paid within 14 days. With a maximum fine for non-payment up to £20,000 per worker. Employers who fail to pay will be banned from being a company director for up to 15 years. In addition, the Government regularly issues a ‘name and shame’ notice of those employers who fail to pay the National Minimum and Living wage.

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