Bethanie Watson
Senior Associate Solicitor
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Date Published:22 Mar 2016 Last Updated:28 Jul 2021

What does the ‘Living Wage’ mean for employers?

Employment Law Advice

As April approaches, it is imperative for all businesses to be aware of the need to increase wages to the national living wage for any employees over the age of 25.

The national living wage is not the same as the national minimum wage and will only apply to those employees who are over the age of 25.

From 1 April 2016 it will become law that employers must pay these employees at least £7.20 per hour, representing a 50p per hour increase on the current minimum wage of £6.70 per hour. This is expected to continue to rise incrementally to £9 by 2020 and will boost the income of roughly 6 million people.

This is an improvement on the current voluntary living wage; which has already been adopted by a number of large organisations, following campaigning by the organisation ‘Living Wage’ which can be seen here. However, it will not affect those employees under the age of 25 on the current minimum wage.

This rise in wages is likely to increase employee morale and productivity and encourage more over 25s to look for permanent employment. Many companies have already pledged to pay above the national living wage.

Employers and particularly small businesses are considering ways in which they can amend employees’ terms of employment in order to absorb these increasing costs; for example replacing employee benefits which do not count towards the national living wage with cash. However, the Office for Budget Responsibility has predicted that £60,000 will be overlooked for jobs due to their age. Employers need to be cautious of their hiring and termination policies as choosing an alternative employee or terminating an employee’s employment to avoid paying the increased wage will be direct discrimination and the employer may face a claim in the employment tribunal.

The government is also reducing corporation tax and employers national insurance contributions to assist with these changes.

If you have any concerns about your obligations in relation to the living wage or wish to consider options for improving staff morale, performance management and amending terms of employment, please contact our employment lawyers on 01202 636210 or email kate.brooks@ellisjones.co.uk.