Tue, 21 Nov 2017
Julie Taylor, senior associate in employment team
In April 2016, the Government introduced the National Living Wage (NLW), which is mandatory for workers aged 25 and over and is currently set at £7.50.
For workers aged under 25, the NLW is not mandatory, and employers can choose either to pay more, or to stick to the applicable National Minimum Wage (NMW) rate.
The NMW has been in force since 1999 and sets minimum rates that employers must pay to their staff for every hour worked.
The rates are reviewed annually and are split into four categories.
For example, currently the standard adult rate for those aged between 21 and 24 years is £7.05, those between 18 and 20 should receive £5.60, young workers aged between 16 and 17 should receive £4.05 and apprentices £3.50 per hour.
Paying the applicable NMW is a legal requirement across the board, regardless of an employee’s age or the size of the employer.
What happens if an employer does not pay?
As the NMW is the legal minimum for everyone, and the NLW is mandatory for workers aged over 25, an employer can face legal action from HMRC if they do not comply.
Significant penalties can follow.
For example, non-payment can incur a penalty of 200 per cent of the amount owed, unless the arrears are paid within 14 days.
In addition, the employer can face fines of up to £20,000 per worker where the NMW requirements have been breached and employers who fail to comply can also be banned from taking up any position as a company director for up to 15 years.
There are also provisions for criminal investigations to take place in the case of repeated breaches and, since October 2013, the Government can ‘name and shame’ employers that do not pay the NMW by listing them on their website.
This variety of penalties demonstrates how seriously fair pay is regarded by the Government and HMRC.
The employees themselves are also able to take action to recover any underpaid wages where an employer is not meeting the NMW by issuing a claim in the Employment Tribunal.
Is this the same for full and part-time workers?
Hourly rates are the traditional method of payment in the UK, so imposing minimum rates, both NMW and NLW, help to ensure a parity of pay levels between workers and minimum standards.
Some suggest the new NLW legislation is helping address the long-standing gender pay gap and, as it applies equally to full and part-time positions, is helping ensure equality for the terms of part-time employees.
For younger workers, however, there is still some way to go before the NLW is implemented for anyone under the age of 25, and the recent Brexit vote may mean that situation is unlikely to change.
What about Brexit?
Currently, and largely thanks to the ‘copy/paste’ nature of the Great Repeal Bill (meaning that all EU legislation is being copied verbatim into UK law), there shouldn’t be any major changes concerning the application of pay rates.
Therefore, it is currently likely that workers will retain the right to either a National Minimum or a National Living Wage, depending on their age.
Ultimately, what happens once Parliament starts to assess the legislation thoroughly remains to be seen, but, as that is likely to be a long process, it’s unlikely to have any major impact on the earnings until well after 2020.
By Julie Taylor, senior associate in employment team
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