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What you need to know about the National Living Wage

By November 19, 2015 No Comments

The living wage is one of the most talked about employment issues at the moment, especially given recent coverage of welfare cuts, the rising cost of living, and the increased use of food banks.

In April 2016, the National Living Wage (NLW) will come into force. This mandatory premium will ‘top-up’ the minimum wage in an effort to bring wages in line with the cost of living. It’s expected that 54% of UK employers will be impacted. But what exactly is the NLW and how may it impact your business?

I’ve heard of the living wage, is this a new thing?

The idea of a living wage has been around for a long time, and will always be brought up while the cost of living and wages do not align.

It was brought to the front of public attention following the 2007 recession, particularly as a result of the housing bubble making home-ownership increasingly difficult.

The NLW that the government has proposed is set by the Low Pay Commission and is based on the amount they feel the market can bear. The initial figure will rise, similarly to the current minimum wage, with the hope that the total wage will reach 60% of median earnings by 2020.

The other ‘living wage’ you may have heard of is one championed by The Living Wage Foundation and is based on the actual cost of living and varies in London to account for its inflated living costs.

The reason the government are now moving towards NLW is to push their ‘higher wage, lower tax, lower welfare’ society plans, reducing government expenditure on things like welfare by increasing the amount current low-paid workers earn.

This comes at a time where even those in work can find it difficult to make ends meet, the government hopes the introduction of NLW will change this, encouraging more people to seek work rather than relying welfare.

Are there any downsides to NLW?

One of the issues with the NLW is that it does not in fact reflect the actual cost of living. NLW would see wages for over 25’s rise by 50p an hour, with minimum wage covering those under 25. According to The Living Wage Foundation, to come in line with the actual cost of living, wages should be £9.40 per hour for London workers, and £8.25 per hour for everywhere else. According to these figures then, the NLW would not solve the wage gap (although any increase in wages will of course be welcomed by employees).

One issue which may cause problems following the introduction of NLW is how businesses choose to absorb the cost of the wage rise. In a study conducted by CIPD, 15% said they would consider raising prices to cope with the increased wages, which could negate the rise in wages for customers if price rises are widespread. Another 15% of employers suggested they may try to reduce employer numbers through redundancy or slower recruitment, which could potentially lead to a rise in unemployment.

Luckily, however, 30% of employers stated they would look to improve productivity and in turn increase profits to cope with the extra cost, while 22% said they would consider absorbing the costs and 16% said they would look to reduce bonuses.

What are the figures for the NLW?

NLW will top wages up to £7.20 per hour for all over 25’s. Under 25’s will still receive the current minimum wage bracket.

How will NLW impact my business?

The wage changes are likely to affect you, regardless of your industry, however, if you mainly employ part-time, lower wage earner, you will likely see the greatest impact. 79% of retail employers are expected to be affected, and 18% of employers are expected to be impacted to a ‘large extent’.

If you’re worried about what these changes could mean for your business, get in touch with Deminos on: 020 7870 1090.

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