What the current National Living Wage is, what it means, and how it is going to change

Static Author Display NameHR

What is it?

First thing’s first, let’s clear up the confusion regarding the difference between the National Minimum Wage, National Living Wage and the ‘real living wage’. The terms are often used interchangeably, but there is a small difference. The National minimum wage is the smallest amount employers legally have to pay to employees over compulsory school age but under the age of 25, while the National Living Wage is the minimum amount employers legally have to pay employees over the age of 25.

The real living wage is a figure calculated by the Living Wage Foundation that values the real cost of living in the UK. Sometimes this term is used interchangeably, which can cause confusion. The main difference? The National Living Wage is a legal requirement, the real living wage is not.

What is the current National Living Wage?

At the moment the National Living Wage is £7.83. The National Living Wage was first introduced in 2016 at £7.20, which then rose to £7.50 in 2017/2018. In the recent budget, Phillip Hammond announced that the National Living Wage would be rising to £8.21 next April, which is a 4.9% rise.

The risks

Following the rise next April it is crucial you conduct a review of all salaries to make sure all staff are being paid correctly, as it can be easy to slip below the threshold during this period. If you discover any of your staff are being paid incorrectly, resolve the situation immediately before it has chance to develop into a full-blown issue.

Why?

Well, in the past year there have been numerous instances of ‘naming and shaming’ of employers who are incorrectly paying the national minimum and/or National Living Wage. If that isn’t scary enough, you can also be fined up to 200% of the underpayment. While there may have been some among the culprits who were knowingly underpaying their employees, most cases were a result of simple errors that pushed employees below the threshold.

There are a few things to watch out for when considering the National Living Wage, for the most common errors and tips on how to recognise them:

  • Be aware of Dates, Age of Workers and length of Service.
  • National minimum wage (NMW) rates increase every April and apply to everyone who earns the minimum wage, or just above. However, workers must also receive the appropriate increase when they reach a different age band. In addition, apprentice pay changes according to length of service.
  • Know who is eligible
  • Zero hours workers, foreign nationals, college students helping out at weekends and senior citizens are all eligible for NMW. The number of hours worked per week makes no difference.
  • Understand the impact of wage deductions.
  • Employers have recently been caught out when deducting wages from workers to pay for their uniforms. Where this deduction takes pay below the NMW, employers are breaking the law. Some deductions, like tax and NI, are treated differently.
  • Be Clear on What Time is “Working Time”
  • Time spent travelling is working time for some situations, so will attract NMW. There has been debate recently on whether workers are entitled to the NMW during sleep- in night shifts, the current ruling says that they are not, but this could be contested. Employees working non- sleeping night shifts are entitled to NMW.
  • Keep an Eye on Overtime.

Not properly recording all hours worked may mean that the odd hour of overtime slips through your net and results in average pay for every hour worked by the worker falling below NMW.