The not so minimal impact of the new National Minimum Wage premium
As from 1 April 2016, workers aged 25 and over will be entitled to the new National Living Wage (NLW). Initially, this premium is being set at 50p per hour, in addition to the National Minimum Wage (NMW) (currently £6.70 per hour), creating a new minimum rate of £7.20 per hour. However, given the real living wage (based on the cost of basic living in the UK) is currently £8.25 per hour (or £9.40 per hour in London) will the impact really be as positive as the Government had hoped for workers and employers?
Undoubtedly, the introduction of the NLW will directly benefit a number of workers, with the Government stating a potential increase of up to £900 per annum for those currently at the bottom of the pay ladder. It is also thought that workers will feel more motivated by the increase in their pay packet which could lead to an increase in productivity.
However, for employers, the NLW is likely to be the latest thorn in their side, perhaps especially in the travel industry, given the hospitality sector is one area where the impact is expected to be the greatest.
For those businesses where an increase in productivity is not expected to outweigh the additional costs and where margins are already low, the knock on effects could be:
- increasing prices
- slowing pay increases
- reducing discretionary payroll costs (such as bonuses and overtime)
- reducing the number of workers (through redundancies)
- a slow down on recruitment.
Implications for business
Employers will need to ensure that they act reasonably and follow fair and thorough processes if they want to take steps to mitigate the financial impact of the increased wage bill by possible changes to remuneration packages.
Failure to do so (even if payments are stated to be discretionary and/or written terms appear to give the employer the flexibility to make changes), can result in an employer facing claims for unfair dismissal, unlawful deduction from wages, breach of contract and constructive unfair dismissal. Likewise, any attempts to actively recruit individuals aged under 25 to avoid payment of the NLW could result in an age discrimination claim.
Become an even better employer
An alternative approach, which is being taken by a number of companies, including some household names, is to pledge to pay higher rates than the voluntary living wage. The thinking being that, by not only attracting but retaining a higher calibre of workers, improved efficiencies (and positive reputational benefits) will more than make up for the additional costs. The reputational impact of being an employer that pays more than the NLW could reap wider business benefits.
Businesses need to ensure that they are ready to pay the necessary increases on 1 April 2016 as non-compliance with the NLW will be enforced by HMRC.
On 1 September 2015, the Department for Business Innovation and Skills announced a number of measures intended to improve compliance with the NLW (as well as NMW), which include:
- increasing the penalties for non-payment of the NMW and NLW to 200% of arrears (which will be halved if employers pay within 14 days), up to a maximum penalty of £20,000 per worker;
- the establishment of a new HMRC team dedicated to pursuing the most serious cases of employers deliberately not paying the NMW and NLW, which can impose penalties, name and shame and result in criminal prosecution; and
- disqualification from being a company director for up to 15 years for the non-payment of the NMW and the NLW.
What employers should do now
It is not yet known when these enforcement measures will come into force.
So, in the meantime, organisations may prepare by:
- ascertaining which workers are eligible for the NLW and the impact on current pay structures and grading;
- conducting an analysis on the additional cost and incorporating this in budgets and forecasts;
- liaising with affected workers and payroll to ensure those who are eligible receive the correct pay;
- considering what steps the organisation will take to cover the additional cost and any related employee relations issues including employment procedures to be commenced and/or amended.
This article was published in the Travel Trade Gazette on 25 February 2016.
For more information on employment law or related enquiries, please contact Sarah Brockhurst, Solicitor, Employment.
Published: 26 Feb 2016