Everything You Need to Know About the New Living Wage 2016

21 Apr 2016


Why are things changing?

Chancellor of the Exchequer, George Osborne’s reason for the changes comes partly from the desire to decrease the 30 billion pound bill for working tax credits. Tax credits currently top up the income of the UK’s lowest paid workers.  The government are aiming to try and move away from low wages and a high welfare society.

How much is the living wage?

The new living wage 2016, for workers over the age of 25, will be £7.20 per hour from the 1st April 2016. That is a rise of 50p from the current minimum wage of £6.70 an hour. The idea is that this rate will increase each year and could be as high as £9.35 by 2020.

For workers under the age of 25 the minimum wage rates will remain the same as they currently are:

Workers aged 21-24:   £6.70 an hour

Workers aged 18-20: £5.30 an hour

Workers aged 16-17: £3.87 an hour

Apprenticeship rate: £3.30 an hour

What’s the voluntary living wage?

The voluntary living wage is a calculation set out by experts at the Living Wage Foundation as the minimum required for a decent standard of living and is currently £8.25 an hour (or £9.40 in London). Employers must by law pay the new national living wage of £7.20 an hour to their employees over 25, but it is their choice whether they follow the guidelines of the Living Wage Foundation and pay workers the voluntary living wage of £8.25 an hour.

What do employers think?

The rise in minimum wage will have a knock on effect causing employers to pay out more in terms of potential higher pension contributions and increases to the pay of workers who currently earn above the minimum wage to reflect the increase at the bottom line. More staff may also become entitled to statutory payments such as maternity or paternity pay. For employers with many workers at minimum wage level this rise in costs may lead them to consider options like increasing efficiency, raising product or service costs for customers or reducing staffing costs.

What do workers think?

There are over one million workers in the UK who will benefit from the introduction of the new living wage in 2016. For a full-time worker this is the equivalent of an increase of £910 a year. However, the risk of organisations cutting overtime or even making redundancies could cause an adverse effect for workers in certain industries.

How might it affect recruitment?

The introduction of the new living wage in 2016 and awareness of the issues lower paid workers face may encourage ethical employers to go one step further and adopt the voluntary living wage. The Living Wage Foundation found that two thirds of employers who adopted the suggested pay rate reported a significant impact on recruitment and retention within their organisation.

Recruitment policies will need to be clear to ensure less ethical organisations, like the 9% of businesses in a recent CIPD survey who admitted they would try and increase recruitment of those under the age of 25 to avoid the effect of the national living wage, do not discriminate.

If you’re a New Millennia partner you’ll know that we cover all payroll and worker relations, so you don’t need to worry about the practical, day-to-day implementation of these changes. If you’re a recruitment agency and you’re concerned about how these changes may affect your business and the temp workers you place, find out more about how New Millennia can help you.

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