As agreed in the autumn budget of 2017 the National Living Wage (NLW) for those aged 25+ rates are to rise to £7.83 (4.4%) from 1st April 2018. The Low Pay Commission (LPC) estimates the increase will benefit over two million workers.
This rise, along with the Minimum Wage rises across the board, will provide more security for the lowest-paid workers but will, of course, increase costs for employers.
What is the difference between NLW and NMW (minimum wage)?
The NLW is a minimum hourly pay rate that is specifically for workers aged 25 and over but who are not in the first year of an apprenticeship. This wage will increase annually until it reaches £9 an hour by 2020.
The NMW is the minimum amount per hour that workers of school leaving age in the UK are to be paid, by law. There is a different minimum wage rate depending on the worker’s age regulated since 1999 by the LPC.
What is included in minimum wage pay?
What counts towards NLW and NMW varies. For example benefits such as meals, fuel, a car or employer pension contributions do not count towards minimum wage pay. If the employer provides an employee with living accommodation a certain amount may count towards minimum pay.
Is everyone entitled to a minimum wage?
There are a few types of workers who aren’t entitled to the National Minimum Wage or National Living Wage. Those include the self-employed, company directors, volunteers, workers on a government programme and members of the armed forces.
What if these rises are not passed on?
If an employee fails to pass on the increases it puts them at risk of facing financial penalties. It is illegal for an employer to pay those entitled below the National Living Wage. As an employee check your pay and talk to your manager to make sure you’re getting what you are due.
Five things an employer should know about NLW and NMW
- Be aware what you should pay your employees and this includes whether or not they have a written contract.
- Know what you should include in minimum wage pay.
- Keep records – it is a legal requirement to keep sufficient salary records to show you meet minimum wage requirements.
- The refusal or neglect to pay a minimum wage and produce false records or information is a criminal offence.
- Rates for NLW and NMW change in April each year. As an employer, you are responsible for paying the correct rate.
How does the rise affect employment?
According to an article by the Institute for Fiscal Studies beyond some point, a higher minimum wage will have adverse consequences for those that it is designed to help. It could get to the point that the higher the minimum wage rises, the less affordable it will be to employ those doing an automated job – they could easily be substituted with ‘capital’ (for example machinery or computers).
As the minimum wage is raised, workers are increasingly affected in occupations that appear easier to automate. For example, the workers set to be brought within the minimum wage net in 2020 are more than twice as likely to be in the top 10 percent most routine occupations – retail cashiers as an example.
There is much more to learn here, and the recent and upcoming policy changes in the UK offer an opportunity to do so. As new evidence comes in, it is crucial that policymakers seeking to help low-skilled workers respond accordingly.
You can read the full Fiscal Studies interview here.