As part of the Governments vision of a “higher wage, lower welfare, lower tax society”, on the 1st April 2016, the National Living Wage becomes law.
This means that ALL workers in the UK aged over 25, and not in the first year of an apprenticeship, are entitled to an extra 50p per hour that sees their wage increase to £7.20 per hour. This is said to have a direct benefit to more than a million people in this bracket, and could see pay packets rise by up to £900 a year.
As an employer from 1st April 2016, you will need to make sure that you are paying your employees correctly and the National Living Wage will be enforced as strongly as the current National Minimum Wage.
Taking into consideration the following 4 steps will help you be ready for this change:
- Check who within your business is eligible. If you are in any doubt and need more information please click HERE for the government’s employment status page.
- Make sure your payroll department is aware, for useful guidance on HMRC tutorials please click HERE.
- Communicate with ALL your employees and make sure they know about their new pay rate.
- Make sure that your employees under the age of 25 are earning the correct rate of National Minimum wage, for the correct government rates please click HERE.
It is vital to remember that there are other things to consider. In HRRevs recent blogs, we have highlighted how some of the big companies have been caught out by not paying the minimum wage, as they had not taken into account certain things.
Outlined below are some payments that must be taken into consideration when calculating the minimum wage:
- Income tax and National insurance contributions
- Wage advances or loans
- Repayment of overpaid wages
- Items that workers have paid for that are not needed for the job or paid for voluntarily, e.g. meals
- Accommodation provided by an employer above the offset rate (£5.35 a day or £37.45 a week)
- Penalty charges for an employee’s misconduct
Here is an example that the government use to help explain it better:
John is 27 and works a 40 hour week. He earns £6.80 per hour or £272 per week.
He pays £15 a week to rent his uniform and the money is not refunded. He also chooses to eat in the canteen and pays £20 per week for his meals.
To calculate his minimum wage, John’s employer must deduct the uniform rental from the pay but not the money paid for meals.
This means John makes £257 per week (£272 minus £15) which is £6.43 per hour. This is below the minimum wage rate of £6.70
It is also important to note that employers who deliberately fail to pay the national living wage to qualifying staff face fines of 200% of arrears owed up to a maximum of £20,000 per each underpaid employee, although this will be halved if paid within 14 days. They may also face criminal charges, so it is critical that companies get it right.”
If any of your employees are not over 25 and do not qualify for the National Living wage, please see below the rates that still apply.
|Year||21 and over||18 to 20||Under 18||Apprentice|
* next wage rates update in October 2016
Download our FREE guide to Payroll, PAYE and Tax in the UK HERE or get in touch and talk to one of our HR Consultants today to see how we can help!