On 8 July 2015, the National Living Wage (“NLW”) was introduced by George Osborne in the first Conservative Budget of this parliament. The NLW, due to come into force in April 2016, will act as a ‘top up’ wage for those aged 25 and over. It has been introduced by the government with the intention of providing a higher wage for ‘more experienced workers’ and raising the UK standards of pay to the levels set by other advanced economies. The ‘top up’ will result in an increase of the total NLW to £7.20. This is set to increase to approximately £9 an hour by 2020 and according to the Office of Budget Responsibility (“OBR”) is likely to result in a pay rise for millions of people. However the OBR also warns that the introduction of the NLW may cost up to 60,000 jobs.
George Osborne has said that businesses will receive help in adjusting to these changes in the form of cuts to corporation tax. Corporation tax will be reduced by 20% to 18% in order to offset what is predicted to be a 1% impact on corporate profits. Small firms will receive extra help by virtue of an increase in the new Employment Allowance by 50%. As of April 2014, the Employment Allowance means that employers can reduce the amount of their National Insurance Contributions by up to £2,000.
The NLW will form part of the remit of the independent Low Pay Commission (“LPC”) which currently reviews and makes recommendations for the National Minimum Wage (“NMW”). In their annual remit for the LPC, the government has requested recommendations on both the NMW and the NLW in the interests of providing businesses with more certainty.
Following the announcement of the NLW, on 1 September 2015, the Department for Business, Innovation and Skills announced its plan to introduce tougher measures, such as higher fines and potential director disqualifications to ensure compliance with both the NMW and NLW. The proposed date for the introduction of these measures has not yet been set.
The government is hopeful that the introduction of the NLW will benefit the business sector and boost the economy as a whole. However, there are obvious concerns for employers, and there are likely to be knock-on effects for employee relations. For instance, if the lower-paid end of a workforce, who are currently paid NMW, receive significant pay rises as a result of the introduction of the NLW (and subsequent increases), employees a little higher up the pay-scale are likely to feel hard done by if they are not also given an increase, even if they are not directly affected by the NLW, giving rise to potential employee relations issues and increased costs.