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National Living Wage - Associate Solicitor Kate Knapton comments...

Our Employment Law expert Kate Knapton considers the controversy surrounding the recent legislation.

The National Minimum Wage came into being on 1 April 2016.  For those workers aged 25 or over it gives a minimum payment of £7.20 per hour.  The minimum wage has increased by an average of 20p per hour each year since 1999 this represents a 50p increase on the national minimum wage. Penalties for non-payment are not insignificant. 

The maximum fine for non-payment is £20,000 per worker. Failure to pay will result in a ban from being a company director for up to 15 years.

The implementation of the National Living Wage has resulted in much comment and debate.  Whilst it may be too early to establish the true impact of this change, some companies already face accusations that they have altered other employee benefits to offset the cost of the increase in pay.

On 18 April 2016, Members of the House of Commons debated the national living wage.  MPs said that pay packages were being cut to counter the cost of the new minimum rate.   Other MPs questioned whether, in making such changes, these companies are remaining competitive and retaining the talent needed for their business.

The Chancellor of the Exchequer has warned companies that in cutting staff benefits to pay for the national living wage they are acting outside the spirit of the law.  It has been suggested that a register be kept of those companies undertaking benefit cuts to take account of the national living wage.  Effectively a name and shame approach with an expectation that these companies attend a meeting to be told that the purpose of the national living wage was to improve and not to reduce the employee’s standard of living; a frankly blunt instrument.

Private businesses are of course at liberty to make any changes they wish to the benefits they provide to their staff with the relevant and appropriate consultation.  Whilst smaller organisations may feel that any further increase to their salary budget is unhelpful it appears from reports in the national press, as well as comments from MPs, that some of the country’s largest organisations are adjusting the benefits they provide to their workers to take account of the increase in the national minimum wage.  

One organisation has even been reported to the European Commission for allegedly making changes in the way it pays its employees on the back of the introduction of the national living wage.  Another company has been the subject of a petition which accuses it of cutting benefits to offset the introduction of the national living wage.

On 13 April 2016, the Low Pay Commission opened a consultation on the impact of the national minimum wage and national living wage, and setting the relevant rates for 2017.  Whether there is evidence that employers are adjusting other benefits to take account of the pay increase; whether other pay is having to be increased to take account of the move of the lowest paid to £7.20 per hour; whether organisations are paying costs to their customers; and whether legal or ethical pressure is forcing organisations to comply with the spirit of the national living wage by not reducing other benefits will all make very interesting reading. 

There is of course the additional matter of whether different parts of the country should have different rates of living wage.  The best outcome for all may be evidence from companies who have been able to trade on the back of demonstrating that they have paid the national living wage (whilst maintaining employee benefits) and their business has subsequently benefitted from retaining valued workers, or even establishing new business, on the back of their ethical stand.

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