UK: The New National Living Wage, Announced By George Osborne In July's Budget, Is Due To Take Effect In April 2016

Last Updated: 21 October 2015
Article by Sarah Beeby

The National Living Wage

The National Living Wage (NLW) is a premium over and above the National Minimum Wage (NMW), which will apply only to workers aged 25 and over. The government will set the first premium in April 2016 at 50p, effectively resulting in a new NMW of £7.20 per hour for older workers. This rate is set to rise to at least £9 per hour by 2020.

It will be compulsory for all UK employers to pay the NLW to eligible workers when it takes effect next year.

The government has announced a package of measures, also due to take effect in April 2016, aimed at improving compliance with the NMW and the NLW. Under the new measures, employers that fail to pay the NLW could face a penalty of up to 200 % of the amount of arrears (i.e. the difference between the NLW and the amount the employer was actually paying) subject to an overall cap of £20,000. Also, company directors can face potential disqualification from holding a company directorship for up to 15 years.

Consequences for colleges and universities in 2016

Fortunately for employers in the higher education sector, the vast majority of employees employed directly in higher education will be covered by the nationally agreed pay spine, which means they will already be paid more than the NLW rate in April 2016. Currently, the lowest rate under the nationally agreed scale is £7.67, based on a 35-hour week.

Colleges employ approximately 200,000 people, 70,000 of whom are employed in support roles. Although colleges set their own pay scales, the lowest pay band in the majority of colleges is already at or above the living wage rate. This is despite the fact that many colleges have been forced to offer below-inflation pay rises in recent years.

However, it is those employees who are not subject to the national pay spine and pay scales who could hit the balance sheets of employers in the higher and further education sector.

As an example, work that is outsourced by institutions will fall outside this framework. A large number of institutions outsource certain jobs, such as security, cleaning and maintenance. Whilst paying the NLW is the responsibility of the employer, it is likely that colleges and universities will see an increase in the cost of this outsourcing as a result of the NLW taking effect.

Universities and colleges should also consider those staff working in cafeterias, bars and shops on campus. Employees working in these areas are potentially entitled to a pay increase as a result of the NLW (assuming their pay is below the NLW rate of £7.20). However, given the majority of such staff are made up of students of the college or university, the effect of the NLW could be limited. The bulk of employees are likely to be under 25, which means they fall outside of the NLW criteria and will not be entitled to the new rate.

When determining whether employees are paid the NLW, universities and colleges should consider individual elements of their employees' pay, as some pay will not count towards the NLW. For example, any premium paid for overtime or shift work cannot be included in any NLW calculations. However, bonuses, commission and other incentive payments based on performance can. It is also important to note that the NLW announced by the government is separate from the living wage initiative promoted by the Living Wage Foundation. The living wage rates promoted by the Living Wage Foundation are higher, and only guaranteed bonus payments can be included (performance-based bonuses are excluded). It is not compulsory to comply with the Living Wage Foundation rates, although an employer that does comply can apply for accreditation and become a Living Wage Employer.

The rise to £9 an hour by 2020

In accordance with the government's current plans, the NLW will increase from £7.20 per hour in April 2016 to at least £9 per hour by 2020. Despite the initial effect of the NLW leaving colleges and universities relatively unscathed, the subsequent rise could create a challenge for employers in the higher and further education sector, particularly when public spending and budgets are being squeezed. Employers should soon start to consider how best to incorporate the NLW rates into their staff's pay structure.

Conclusion

The initial implementation of the NLW should be less of a burden on employers in the higher and further education sector than in other areas such as retail and care. However, there will inevitably be an increase in expenditure, particularly regarding outsourced work. The impact of the NLW is likely to be felt more by higher and further education providers as they are required to keep up with the gradual rise in the NLW to £9 by 2020.

This article was originally published by Croner-i Human Resources Higher and Further Education.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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