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What does the National Living Wage mean for your business?

BY Paul Deans
Employment Law & HR
BG Purple

Compared to last year, and the ongoing sagas surrounding holiday pay and tribunal fees, employment law in 2015 has been somewhat more peaceful.

Those of us who have worked in this industry for any length of time know that this will not remain the case for long: not least because of Chancellor Osborne’s rather unexpected announcement of the introduction of the National Living Wage on a statutory basis in April 2016. This will replace the current National Minimum Wage of £6.50 with the substantially higher rate of £7.20 for workers over the age of 25.

Whilst some time remains before the National Living Wage will come to be enforced, now is the time for employers to start preparing for the increased wage bill which, for some, could prove to be substantial.

The National Living Wage plans are still in their infancy: the rules and logistics of how it will operate in practice remain to be seen. What we do know however, is that the current rules on calculating National Minimum Wage can be rather convoluted, and can quite often form the basis of workplace disputes. The National Minimum Wage Regulations give a clear indication of the payments which cannot be taken into consideration when assessing whether or not National Minimum Wage has been paid. Included in this list are allowances paid to a worker in addition to their basic rate, in respect of things done over and above their normal duties, such as working unsociable hours or in dangerous conditions. 

It is likely that the Government will choose to replicate this rule and apply it to the new National Living Wage. This could have implications for many organisations e.g. the care sector, where a basic rate of pay is often supplemented by a percentage shift allowance in respect of overnight stays. Not only would employers in this industry have to pay a significantly higher basic rate, they could be contractually bound to pay a shift allowance calculated as a percentage of this higher rate, greatly increasing staffing costs.

The effect which the National Living Wage will have on UK business remains to be seen at this stage. Employers should however bear its pending arrival in the forefront of their minds when considering changes to employee bonuses, shift allowances and, of course, recruitment in general.

Now what did I say about employment law being peaceful…?

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