- National Minimum Wage vs. National Living Wage

There has been much varied opinion publicised recently, as a result of the Chancellor’s summer Budget revealing a National Living Wage (NLW) that is coming into force in April 2016. Whilst the National Minimum Wage (NMW) rose again at the beginning of this month, the NLW will arguably have a much greater impact.  Here’s why…

National Minimum Wage Increases

From 1st October 2015:

  • the rate for 21+ year olds increased by 20 pence to £6.70 per hour
  • the rate for 18 to 20 year olds increased by 17 pence to £5.30 per hour
  • the rate for 16 to 17 year olds increased by 8 pence to £3.87 per hour
  • the apprentice rate increased by 57 pence to £3.30 per hour

This was the biggest increase in the NMW since 2007, with more than 1.4 million of Britain’s lowest-paid workers benefiting.

Employers don’t have a choice

However with the new compulsory National Living Wage, full and part-time workers aged 25 and above will be entitled to £7.20 an hour, with the aim of it reaching more than £9 an hour by 2020.

6 million workers are expected to acquire a pay rise, but according to the Office for Budget Responsibility it’s likely to cost 60,000 jobs and reduce hours worked by 4 million a week.

Whilst Employee’s will accept this “rebranded minimum wage” with open arms, it has dampened hiring intentions for Employers who are already removing recruitment plans in an attempt to lessen the number of future wage hikes.

The Living Wage Foundation

The Living Wage Foundation (not to be confused with the new NLW) is a group that promotes a level of pay that will give workers enough for a basic standard of living. It is not legally enforceable but some organisations such as Google, HSBC and ITV have already joined.

Currently, the calculated rate for any Employee working for a Living Wage Foundation Employer, is £7.85 an hour and £9.15 in London.

The Living Wage Foundation are said to be delighted with the Chancellor’s announcement, but have raised some concerns as well.

Firstly, it emphasised that their lowest level of pay in London is higher now (£9.15 an hour) than the NLW is set to be in 2020 (£9 an hour.)

They also advised companies to pay the NLW to workers under the age of 25 as well, however the Treasury argued that “the priority is to secure work and gain experience” for this [age] group.

What does the NLW mean to you?

So how will this affect you – are you an excited Employee or a worried Employer? If you would like to talk to us about these upcoming changes and how they might have an impact on you, please contact us on 01582 883299.

“Britain deserves a pay rise and Britain is getting a pay rise.” – George Osborne

Sian Freeman – Administration Apprentice
Su Allen HR