Who does it apply to?

The living wage applies to employees who are 25 or older on 01/04/2016 and starts at £7.20/hour, with plans to increase to £9/hour by 2020. This is a 50p increase on the current National Minimum Wage, currently £6.70, which is due to rise again on 1^st October.

If you’re a director, the National Living Wage and National Minimum Wage don’t apply and so you don’t have to worry. However, if you have employees it’s an extra layer of complexity to think about. Not only do you have to keep an eye on hours worked, but this adds another annual rate change (1^st April) and another date to keep track of if you have workers under 25.

Current Rates

The statutory rates from 1^st April are as follows:

Dates for your diary

Dates to be aware of:

HMRC have mentioned that they are reviewing the two annual dates and in future the NMW and National Living Wage increase dates may be aligned. Given their desire to “simplify taxes” it would make sense to align it to the start of the tax year.

The calculation of whether you meet the National Minimum Wage/National Living Wage level can be complex as a few things can be excluded i.e. some reimbursements and deductions. Records relating to pay should really be kept for six years (min. 3) including why any changes were made to the payroll and what those changes were. Volunteers and sole traders are excluded from the rates as well as directors. Those who are paid by item made (or similar) have a slightly different calculation but the National Minimum Wage/National Living Wage does still apply.

What penalties could apply?

The penalties of not paying the National Minimum/Living Wage are heavy. You will have to pay arrears at very short notice, have further penalties applied (up to 100% of the arrears with a maximum of £20k per worker) and be ‘named and shamed’ by HMRC - even for as little as £100 underpayment. To date, around 400 employers have been named along with the amount they neglected to pay.

What to do next

Should you check and find you haven’t been paying the National Minimum Wage before now, you must increase the current rate and pay arrears based on the current rate immediately. Please contact us if you think this could be the case.

You can have a look at HMRCs NMW calculator, but you can also contact your account manager if you want to talk about this in more detail, or send us through your employee’s average monthly hours if you want us to check your compliance.