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Compulsory national 'living wage' to be introduced in April 2016

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Employment Law & HR
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Note: this article was first written by our colleagues at Solve HR, before Solve HR joined Law At Work in March 2020. We have imported this...

Minimum wage will change to £7.20 in April 2016 for all working people aged over 25. George Osborne announced in his first purely Conservative budget than '"Britain deserves a pay rise and Britain is getting a pay rise'". The Low Pay Commission (LPC) will recommend any future rises to be made to the compulsory National Living Wage(NLW). The Government is aiming for this to have reached £9 per hour by 2020. The Office for Budget Responsibility (OBR) claims that National Living Wage would have a 'fractional' effect on jobs says Osborne. As a result of the National Living Wage, the Office for Budget Responsibility believe there will be 60,000 fewer jobs by 2020, but in total there will be one million more. The Office for Budget Responsibility estimate this will cost a business 1% of profits. Corporation tax will be cut to 19% in 2017 and 18% in 2020 to offset this cost. For small businesses their national insurance contributions will be cut to allow them to benefit from this also. George Osborne also announced '"From 2016, our new Employment Allowance, will not be increased by 50% to £3,000. This means a firm will be able to employ four people full time on the new national living wage and pay no national insurance at all.'" As it stands the national minimum wage is sitting at £6.50 per hour which is to rise to £6.70 in October. In April 2016 anyone aged 25 an over will see a rise of 11% on their current mandatory pay rate, resulting in an hourly rate of £7.20. The Government also published a new remit for the Low Pay Commission. To allow a sustainable level of National Living Wage and taking into account wider economic conditions, National Living Wage will be set to reflect the growth in median earnings by the Low Pay Commission. The Low Pay Commissions remit which related to the National Minimum Wage, will not only concern those aged under 25 and will remain unchanged. The Low Pay Commission will also set out how it will reach 60% of median earnings by 2020. This is based on forecasts by the Office for Budget Responsibility.

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