The National Living Wage (also known as NLW), (not to be confused with the Real Living Wage which employers can choose to pay on a voluntary basis), was introduced in April 2016 and was set at a rate of £7.20 per hour for all workers aged 25 and over with a projection of it increasing to £9.00 per hour by 2020. This would mean that the NLW will need to increase by 45p per hour in April each year if this is to be achieved. All of the other National Minimum Wage (also known as NMW) rates for under 25’s will also be reviewed and potentially increase each April instead of each October as it has historically been, starting from 2017.
Is the National Living Wage a legal requirement?
Paying the NLW and NMW rates to all eligible employees is a legal requirement that employers are required to adhere to and the introduction of the NLW has been heavily publicised with supporters both for and against its introduction.
Most organisations have pay structures dependent on skills and experience. Most organisations need employees of various skill and experience levels in order to operate efficiently and economically. Not all businesses are in the advantageous position of being able to afford to go over and above the legal requirements and consider paying the voluntary real living wage even though they understand the positive business and individual benefits.
What impact will the National Living Wage have on businesses?
Whilst no one can argue that everyone deserves to be paid at a fair rate that allows them to meet their cost of living, it was only recently that Director of CoLaw, Andrew Robinson, experienced in reality what the introduction and projection of the National Living Wage to £9.00 by 2020 might mean for businesses.
Whilst visiting a large manufacturing client recently to review their current pay structure in order to put plans in place to account for the potential projection of the increases in the National Living Wage over the next 4 years. It soon became clear that the less skilled employees would see their hourly rate increase to such a point that they will be being paid close to that of the more skilled workers. The cost to the bottom line to increase a unilateral 45p per hour pay rise in line with the National Living Wage.
Dangers of the National Living Wage
All workers deserve to be paid a fair wage for what they do and to be able to live comfortably. However, are we are in danger of closing the gap between skills and experience and the rate of pay applicable, to such an extent that there is no merit in people bettering themselves or aspiring for more, when the rewards will not be there?