On the money
Published: 07 Apr 2016
The new National Living Wage (NLW) could land employers in legal hot water, a leading employment law expert in Aberdeen has warned. Steve Cook, CEO at Empire, which has offices in Aberdeen, Glasgow and Inverness, warns that employers need to consider carefully how to incorporate the new costs into their businesses.
From today all workers aged 25 and over will be entitled to be paid £7.20 per hour (potentially rising to £9 by 2020). The change is likely to affect six million people in the UK.
Employers contemplating terminating staff contracts when employees reach 25, and passing the jobs to younger people, could put a business at risk of an age discrimination claim.
More than half of UK employers say the NLW will have an effect on their wages bill, and managers will need to find a way to offset that cost.
Retailers have claimed that the overnight change could lead to job cuts. Indeed, the Office for Budget Responsibility has claimed that the NLW would result in 60,000 job cuts by 2020.
Furthermore, employers need to keep a tight control on pay systems to ensure they don’t miss a 25th birthday.
It’s a criminal offence for employers not to pay the NLW and HMRC has the right to carry out checks and examine payroll records. Employers must keep documentation for three years, with severe penalties for non-compliance.
The new NLW could lead to huge variations in pay across the workforce. An apprentice could earn £3.30 per hour for the first year, less than half the NLW level.
Furthermore, the salary hike at age 25 could lead to a discrepancy in terms of pay grades, where supervisors aged 24, could be earning less than junior members of staff just a year older.
Surprisingly, this scenario would not risk an age discrimination claim – the NLW has a special exemption so people 25 and under cannot claim they are being unfairly treated because of their age – even if they are.
The NLW is set to be £9 by 2020 – which is almost three times the current apprenticeship rate. To reach £9, the NLW will need to increase by over 6% – which is somewhat larger than the current average 2% annual salary rise. Managers are likely to be faced with disgruntled employees not facing such a significant salary increase.
With compulsory pensions in place for most, employers are facing even more strain on their costs, and a potentially demoralised workforce as well.
NATIONAL LIVING WAGE – WHAT EMPLOYERS NEED TO KNOW
● New £7.20 National Living Wage (NLW) starts today
● Staff 25 or over must be paid at least NLW in their next pay packet
● Upon turning 25, staff should be paid the new rate in their next pay packet
● There is a special exemption on equality laws to prevent under 25s claiming age discrimination
● Managers should audit pay schemes to check if NLW causes discrepancies with pay grades
● Terminating contracts of any worker due to their age is against the law