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over 1 year ago by Debbie Lloyd

National Living Wage Explained

The Living Wage

As Living Wage Week rolls around again, our supplier Croner takes a look at what the current National Living Wage is, what it means, and how it is going to change.

What is it?

First thing’s first, let’s clear up the confusion regarding the difference between the National Minimum Wage, National Living Wage and the ‘real living wage’. The terms are often used interchangeably, but there is a small difference. The minimum wage is the smallest amount employers legally have to pay to employees over compulsory school age but under the age of 25, while the National Living Wage is the minimum amount employers legally have to pay employees over the age of 25.

The real living wage is a figure calculated by the Living Wage Foundation that values the real cost of living in the UK. Sometimes this term is used interchangeably, which can cause confusion. The main difference? The National Living Wage is a legal requirement, the real living wage is not.

What is the current National Living Wage?

At the moment the National Living Wage is £7.83. The National Living Wage was first introduced in 2016 at £7.20, which then rose to £7.50 in 2017/2018.

What is the future of the National Living Wage?

In the recent budget, Phillip Hammond announced that the National Living Wage would be rising to £8.21 next April, which is a 4.9% rise.

The risks

Following the rise next April, it is crucial you conduct a review of all salaries to make sure all staff are being paid correctly, as it can be easy to slip below the threshold during this period. If you discover any of your staff are being paid incorrectly, resolve the situation immediately before it has chance to develop into a full-blown issue. Why?

Well, in the past year there have been numerous instances of ‘naming and shaming’ of employers who are incorrectly paying the national minimum and/or National Living Wage. If that isn’t scary enough, you can also be fined up to 200% of the underpayment. While there may have been some among the culprits who were knowingly underpaying their employees, most cases were a result of simple errors that pushed employees below the threshold.

There are a few things to watch out for when considering the National Living Wage, for the most common errors and tips on how to recognise them, see our Infographic on how to Avoid National Minimum Wage Naming & Shaming

Paying the living wage

Employers have two methods of paying the Living Wage – they can either sign up through the Living Wage Foundation as a Living Wage employer, in which case they become accredited. The employer then has to make certain commitments, and would be removed if they didn’t increase the living wage within the six months. Examples of organisations that have done this are Chelsea and Everton Football Clubs. Alternatively, Employers can just decide to provide the Living Wage voluntarily, but do not commit to doing so via the Living Wage Foundation and so don’t become accredited.

The living wage, as announced today, will increase by 3.4% to £10.55 in London and by 2.9% to £9.00an hour across the country

Source: Croner