WHAT’S UP WITH U.K.’S NEW NATIONAL LIVING WAGE?

London1a

A new mandatory national living wage of 7.20 pounds an hour is to become law in the U.K. on April 1 and would be mandatory for employees 25 and older.

Seems simple, but wait--what happens to the current minimum wage? What are employees 24 and younger paid?

So about that …

How does the national living wage differ from the national minimum wage?

The national living wage is a compulsory rate of national minimum wage for all employees 25 and older, initially set at 7.20 pounds an hour, effective April 1. Once in effect, employees ages 21 to 24 would be paid at the current adult rate of the national minimum wage of 6.70 pounds an hour. Workers 18 to 20 would be paid 5.30 pounds an hour, while those younger than 18 would be paid 3.87 pounds an hour. Apprentice wages may vary, depending on age.

Simply, only employees 25 and older would receive a 50 pence pay increase in April.

The following chart shows what employees are to be paid, effective April 1:

UKchartA

Isn’t there already a living wage?

Yes, but it is an informal benchmark and is not legally enforceable, unlike the national minimum wage and the national living wage. Confusing, right?  The living wage, set independently by a private charity, the Living Wage Foundation, is a voluntary rate that is considered high enough to maintain a normal standard of living.

The current hourly living wage rates are 8.25 pounds for the U.K. and 9.40 pounds for London. By comparison, the national living wage of 7.20 pounds an hour is lower and would be compulsory for all employees 25 and older, effective April 1.

The following chart shows the differences between the new national living wage, the national minimum wage and the optional living wage, effective April 1:

UKtable2

      What should payroll professionals do?

  • Know that the correct rate of pay is 7.20 pounds an hour for employees 25 and older.
  • Determine the employees who are eligible for the new wage.
  • Update the company payroll system by the April 1 deadline.
  • Communicate the changes to staff members as soon as possible.

    What should be tracked?
  • The national living wage is expected to rise steadily, reaching more than 9.00 pounds an hour by 2020. Employers should track changes to the wage rate.
  • Currently, the national living wage is to change in April, followed by the national minimum wage in October. However, the government may seek to sync the two wage rates so that they take effect in April each year.

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