EMPLOYMENT

Introducing the National Living Wage

As you may be aware from recent media coverage The National Minimum Wage (Amendment) Regulations 2016 (“The Regulations”) come into force on 1st April 2016. The Regulations introduce the National Living Wage, a minimum hourly rate of pay calculated to reflect a level of income households need for a minimum acceptable standard of living. The National Living Wage will only apply to workers aged 25 and over and has initially been set at £7.20 per hour, an increase of 50p per hour from the National Minimum Wage. Future increases to the National Living Wage will be decided upon by recommendations from the Low Pay Commission.

 

The National Minimum Wage will continue to apply to those workers aged 24 and under. The relevant rates of pay can be found at 4A of The National Minimum Wage Regulations 2016. For the avoidance of doubt from 1st October 2015 the hourly rate of pay for workers aged 21-24 is £6.70, £5.30 for those aged 18-21 and £3.87 for those under 18 years of age.

Employers should be aware that payment of the National Living Wage is a legal obligation and they have no discretion in relation to whether they make this payment. Any employer who fails to pay an employee over the age of 25 the National Living Wage is leaving itself exposed to claims from both its employees and HMRC.

Employers seeking to avoid the costs of implementing the National Living Wage should remind themselves of their obligations as set out in the Employment Rights (Northern Ireland) Order 1996. In particular Articles 135 and 135A of the 1996 Order provide that an employee has the right not to be unfairly dismissed for asserting a statutory right or by reason of the National Minimum Wage respectively. Should an employer decide to dismiss an employee because he/she has reached the age at which he/she would be entitled to the National Living Wage or for asserting a right to the National Living Wage such a dismissal will be unfair. Employers should note that an employee does not need 52 weeks continuous service to bring a claim for unfair dismissal under these provisions.

Further implications resulting from the non payment of the National Living Wage may include penalties being imposed by HMRC. If HMRC discover that an employer is not paying employees the National Living Wage the employer will be served with a Notice of Underpayment. This Notice not only requires the offending employer to pay any arrears due to the underpaid employee, but requires the employer to pay a penalty within 28 days of service of the notice. Following implementation of the 2016 Regulations the Government are increasing the penalty to 200% of the arrears owed. However if payment is received within 14 days this penalty will be reduced to 100% of the arrears. The maximum penalty per worker is currently £20,000. To avoid embarrassment employers should also be aware that the Government have in place a name and shame policy which publishes details of those employers who fail to pay their employees the National Minimum Wage.

In light of the above we would suggest that employers review their workforce in advance of 1st April 2016 to determine which of their employees are eligible for the National Living Wage and to take appropriate steps to ensure their payroll systems are ready for implementation. We would also encourage employers to advise employees of the change to their hourly rate in writing in advance of 1st April.