What is it?
It is essentially a new rate of the National Minimum Wage for workers over the age of 25 and is initially to be set at £7.20 per hour.
The other rates of the National Minimum Wage are the Younger Adult rate (21-24) at £6.70, the Development rate (18-20) at £5.30, the Young Workers rate (under18 but above compulsory school age) at £3.97 and the Apprentice rate at £3.30.
It should not be confused with the ‘living wage’ calculated by the Living Wage Foundation to reflect the basic cost of living in the United Kingdom, which is voluntary and set at £8.25 or £9.40 in London.
How is it calculated?
As it is simply an additional rate of the National Minimum Wage the same rules apply as to the other rates which have been in force for some time. Thus the complicated provisions relating to allowances and supplements and calculating hours of work will still apply.
Are there any employment law risks?
There is a potential problem with age discrimination.
Whereas the Equality Act contains an exemption for the application of Minimum Wage rates there could be a problem in recruitment or redundancy selection. Recruiting those under 25 or selecting for redundancy those over 25 could amount to age discrimination which although potentially justifiable is unlikely to be acceptable to the courts.
Problems may also arise if employers seek to defray the costs of the National Living Wage by seeking to reduce discretionary payments such as bonuses. Firstly it is unlawful to subject an employee to a detriment simply because they qualify for the higher rate of payment but also attempting to vary employees’ terms of employment can involve a number of pitfalls upon which it would be wise to seek advice in advance.
Finally, if an employer dismisses an older employer to avoid having to pay the National Living Wage this will be an automatically unfair dismissal.
In general, as the National Living Wage is simply an extension of the National Minimum Wage it should cause few legal problems to employers unless they seek to make changes elsewhere to mitigate its financial effect in which case they should proceed with caution and take advice.
For additional information on this article please contact a member of our Employment Team on 01905 721600