Minimum Wage Rates - Voluntary vs Mandatory
21 November 2016
Minimum Wage Rates – Voluntary vs. Mandatory
2016 has seen unprecedented changes to minimum wage changes, both mandatory and voluntary, including:
- Last week, the Living Wage Foundation announced during ‘Living Wage Week’ a further increase to the hourly living wage rate from £8.25 to £8.45 per hour (£9.75 in London;
- At the start of October 2016, the National Minimum Wage was increased significantly for those under the age of 25; and
- Earlier in the year in April 2016, the government introduced a new National Living Wage of £7.20 per hour for those aged over 25.
In the wake of these changes, employers could be forgiven for being somewhat bewildered as to what they should be paying their staff, and so we have outlined below the key information employers should be aware of.
Living Wage Foundation
The Living Wage is an independent movement which thousands of organisations across the UK, large and small, participate in.
This differs to government set wage rates below in that participation is entirely voluntary, and the rate us independently calculated each year based on what employees need to live on.
The current rate as announced last week will be increased by 2.4% to £8.45 (£9.75 in London) with immediate effect. Employers who are currently an accredited living wage employer will have 6 months from 1st November 2016 to implement the new rate.
The purpose of this movement centres on fairness for employees, and the reported benefits for employers include improved productivity, reduced absenteeism, greater attraction and retention of quality staff, and enhanced reputation with consumers as an ethical employer.
The National Living Wage
This was introduced in April 2016 as a higher minimum wage rate for anyone aged over 25.
The crucial difference between the National Living Wage (NLW) and the Living Wage Foundation rate is that the NLW is mandatory - employers must pay all staff over the age of 25 £7.20 per hour. The penalty for non-payment of the National Living Wage is £20,000 per worker. Enforcement has increased dramatically as a result of a new team being set up within the HMRC to pursue criminal prosecutions.
The key criticisms of this change are:
- Increased costs for employers in a climate of uncertainty;
- It has the potential to encourage discriminatory employment practices through employers avoiding the higher rate by employing younger workers at a cheaper rate; and
- The name assigned to this change being difficult to distinguish with the original living wage promoted by the Living Wage Foundation.
The National Minimum Wage
Finally, the National Minimum Wage applies to workers under the age of 25, and is also mandatory for employers.
The only difference between the National Living Wage and the National Minimum Wage is that it is for younger workers and the rates are at a lower level.
As with the National Living Wage, penalties for non-compliance can be enforced by the HMRC, and so employers should take care to ensure the age of their younger employees is being tracked, either electronically through a payroll system or manually, to ensure they are paying the correct rate.
National Minimum Wage rates were increased on 1st October 2016 as follows:
- 3.7% increase for 21 to 24 year olds from £6.70 to £6.95 per hour
- 4.7% increase for 18 to 20 year olds from £5.30 to £5.55 per hour
- 3.4% increase for 16 to 17 year olds from £3.87 to £4.00 per hour
- 3% increase for Apprentices (aged under 19 or over 19 in their first year of apprenticeship) from £3.30 to £3.40 per hour
Further Information & Support
FDHR Services will keep you up to date with any further developments to mandatory and voluntary wage rates. If you would like further information on this in the meantime, please contact Louise McCosh, HR Director on 0141 221 2984 or email firstname.lastname@example.org.