The National Living Wage: FAQs
On 1 April 2016 the National Minimum Wage (Amendment) Regulations 2016 came in to force introducing a national living wage (NLW) across the UK.
Who does the NLW apply to?
Most workers aged 25 years or over who are working or ordinarily working in the UK will be entitled to receive at least the NLW. For the purposes of the National Minimum Wage Act 1998, a worker is an individual who works under a contract of employment or a contract to personally perform work or services for another (provided that the other is not a customer or a client). Certain workers are excluded from the new provisions such as volunteers, those participating in work experience placements, apprentices and non-executive directors.
What is the NLW rate?
The current NLW rate is £7.50 per hour (45 pence per hour higher than the current National Minimum Wage), as updated on 1 April 2017. The Government intends the NLW to be increased gradually over the coming years to £9.00 per hour by 2020.
Is the NLW the same as the living wage?
The “living wage” is entirely separate from the NLW. The living wage is a voluntary rate calculated independently with reference to the basic cost of living in the UK. The current UK living wage is higher than the NLW at £8.75 and there is also a London living wage which is currently £10.20 per hour. Unlike the NLW, employers are not obliged to comply with the living wage rates and indeed many choose not to.
When did the NLW take effect?
The NLW became law on 1 April 2016. All eligible workers should have received the NLW from this date.
How do I work out whether NLW has been paid?
In order to determine whether the NLW has been paid the “average hourly rate” will need to be established. This will involve dividing the total pay a worker has earned over the relevant pay reference period by the total number of hours worked.
The pay reference period is the period used for calculating hourly pay and is generally one month. However, if the worker is paid by reference to a period that is shorter than a month, that period will normally apply.
What happens if an employer fails to pay the NLW?
A notice of underpayment will be issued in cases where arrears of NMW are found to be outstanding. This will set out the arrears of NMW to be repaid by the employer together with a requirement for the employer to pay a financial penalty within 28 days of service. The maximum financial penalty that can be imposed is an amount equal to 200% of the amount owed, up to a maximum of £20,000 per worker.
Employers will also run the risk of being named by the Government as one of the non-compliant organisations which carries with it serious reputational risk.