Each time new regulations are introduced, they throw up many questions that need to be answered to be sure of compliance. On 1 April 2016 the national living wage (NLW) of £7.20 per hour became the minimum amount that employers could pay workers aged 25 or over. Here are our answers to some of the most commonly asked questions about this.
When did the NLW have to start?
On the first day of the pay reference period that fell on or after April 1st.
What does not count towards the NLW?
To be sure that the NLW has been paid for any pay reference period, you should not include the following elements in the calculation:
- Employer pension payments
- Repayments of expenses
- Benefits in kind
- Shift premiums
- Advances of wages
When all these elements have been excluded, the worker should be paid a minimum of £7.20 per hour for every hour worked. The gross amount calculated can include bonuses, commission and incentive pay.
How should holiday pay be calculated?
You should include any regular overtime undertaken as well as a worker’s normal or average working hours when working out holiday pay.
Must I pay the NLW to apprentices who are over 25?
Yes, unless they are still in the first year of their apprenticeship, in which case the relevant band of the national minimum wage still applies.
What happens when a worker turns 25?
He or she will not be eligible for the NLW until the first day of your next pay reference period. They must be paid the NLW for the period following their birthday.
When will the NLW next increase?
The government intends to review all the statutory minimum wage rates to introduce any changes by April 1st each year, beginning in 2017. The NLW rate will gradually increase until 2020, when it is intended to have reached £9 per hour.
How does the NLW apply to those paid a fair piece rate?
If they are over 25, these workers are eligible for an additional 20% on the normal NLW. You should pay them £8.64 per hour.
How will the NLW be enforced?
The consequences of not paying the minimum rates that apply could be financially crippling and are designed to be a good deterrent to non-compliance. An HMRC compliance officer can order an employer to pay any arrears to the workers and pay a fine of 200% of the underpayment for each worker. Serious cases may be criminally prosecuted, in which case there is no limit to the fines that can be imposed following a guilty verdict.
The questions listed above are those that are most commonly asked. If you are not clear about any of the answers, or have other queries, your local bookkeepers will be happy to help.