National Living Wage
Many employers including large numbers of local authorities have signed up to the National Living Wage.
When does it come into effect?
The National Living Wage becomes law in April this year. It will start at £7.20 and rise to £9 an hour by 2020, replacing the £6.50 minimum wage for the over 25’s only. (The National Minimum Wage will remain in place for employees under the age of 25)
By 2020, someone aged over 25 working 35 hours a week and previously earning October’s minimum wage of £6.70 will see their wages go up by around £4,000 a year.
A Negative impact on Businesses?
It’s another cost for employers (along with Pension Auto-Enrolment, including overtime and commission in holiday pay and the imminent grandparent entitlement to shared parental leave/pay) so employers will be assessing how they afford the costs – perhaps through a reduction in staff. Some organisations may opt to recruit more under-25s, but will then be at risk of age discrimination claims.
A Positive impact on Businesses?
Some believe that paying a living wage increases employee commitment and productivity, reduces absence and employee turnover. It could also strengthen recruitment opportunities and provide reputational benefits (Living Wage Foundation, 2014).
And businesses will be given help to make the changes to wages; Corporation tax is being cut by two per cent to 18 per cent by 2020, and employers will be able to reduce the amount of National Insurance contributions they pay for their employees.
But what about those employees that are paid at just above the living wage rate?
The differences between their pay and those on the lowest pay will be eroded and the dissatisfaction associated with low pay may well just transfer to them. If everyone else in turn expects a pay increase to maintain their pay hierarchy, the costs of goods and services will increase and disposable income will reduce in line – it could end up back to square one in a vicious circle.
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