The National Minimum Wage Act 1998 is the overriding legislation that creates an entitlement for certain workers to be paid at a minimum wage.  It applies UK wide.

The Act defines what should happen but it paves the way for Regulations that define how and what will actually happen.  These Regulations accumulated over the years since they were first introduced in 1999, which led to 27 or so different pieces of secondary legislation.  These were all consolidated from 06 April 2015 into the National Minimum Wage Regulations 2015.  At this time there was one Act and one set of comprehensive Regulations that made the Act work in practice.  For example, Part 1 of the Act says that there will be National Minimum Wage rates but it is regulation 4 of the 2015 Regulations that state what the rates will actually be.

The National Minimum Wage (Amendment) Regulations 2015 made only one change to the 2015 (main) Regulations.  These were effective 01 October 2015 and amended the 4 rates applying for the first pay reference period on or after this date:

Hourly Rate

October 2015

21 and   over

£6.70

18 – 20

£5.30

Under 18   (over school leaving age)

£3.87

Apprentice*

£3.30

 

* For apprentices aged 16 to 18 and those aged 19 or over who are in their first year.  All other apprentices are entitled to the National Minimum Wage for their age.

Keep with me, as I think it is important to outline the above so that the rest of the article makes sense!

The National Minimum Wage (Amendment) Regulations 2016 have now been laid that make two changes:

  1. The 1998 Act is amended with regard to penalties, and
  2. Regulation 4 of the 2015 Regulations is amended in light of the forthcoming National Living Wage (NLW):

1998 Act Amendment

On 01 September 2015, Business Secretary Sajid Javid announced that the penalties for non-payment of the National Minimum Wage and Living Wage in any pay reference period would increase from 100% of the arrears to 200%.  This penalty is halved if it is paid within 14 days and is still subject to the maximum penalty per worker of £20,000.

The 2016 Amendment Regulations amend section 19A (5A) of the 1998 Act.  This section itself was only effective in 2015, courtesy of the Small Business, Enterprise and Employment Act 2015.

2015 Regulations Amendments

Summer Budget 2015 announced ‘a new National Living Wage for workers aged 25 and above’ at £7.20 per hour from 01 April 2016, with the intention that it would reach £9 per hour by 2020.  At the time, this was given the acronym NLW and a Government Policy Paper in August 2015 also gave it this acronym.  However, the Budget Report also described it as a premium to be paid on top of the National Minimum Wage (NMW), as does the Policy Paper!

So, is this the NLW or is it a premium on top of the NMW?  The 2016 Regulations are not particularly clear in this regard, however, it seems clear to me that it is an enhancement or top-up to the NMW, i.e. a ‘Living Wage Premium’.  The value of the premium is a maximum of 50p, i.e. when added to the adult NMW rate of £6.70 it will give £7.20.

Regulation 4 of the 2015 Regulations is amended as follows:

  • 4 is renamed National Living Wage and is described as ‘a single hourly rate of the national minimum wage’
  • 4A is added and details the hourly rate of the NMW – i.e. for the people that do not qualify for the premium)
  • 4B is added and clarifies that the rate that is payable for to the worker the pay reference period is the rate that applied at the start of the period – i.e. if someone was under 25 at the start of the pay reference period they would not be eligible to be paid at the NLW premium for the entire period

4B is some really useful clarification for employers.  The rate that is payable for the entire pay reference period is the rate that they were entitled to be paid at the start of the period.

4 and 4A simply means that there are 5 tiers of the National Minimum Wage that are payable for pay reference periods on or after 01 April 2016.  The rate at which they are paid is dependent on their date of birth at the start of the period and whether they are classed as an apprentice.

New Territory

There will be plenty of room for confusion I feel and payroll and HR departments need to be prepared:

  • It is important for employers to differentiate between the NMW and the premium as, currently, the two are subject to change at different times of the year.  Whilst the Low Pay Commission will review the rates of both, the NMW will be reviewed in October whilst the NLW premium will rise in April.  Luckily, there is the expectation that these reviews will be aligned in the future
  • Another reason for the differentiation is to prevent confusion with the voluntary Living Wage and London Living Wage.  For the sake of even more confusion, these rates are reviewed in November!
  • How will you choose to show this on your workers’ payslips?  Everything points to a new pay element called ‘Living Wage Premium’ that will ensure eligible workers are paid at least £7.20 per hour for pay reference periods starting on or after 01 April 2016
  • As the £7.20 is a statutory rate, i.e. NMW plus the ‘Living Wage Premium’ and is another tier of minimum wage at which the worker should be paid, there is another compliance issue.  The possibilities for non-compliance is recognised by Government, hence the reason for the increase in penalties.  Therefore, employers will want to ensure that their employees are paid at least this rate with the same considerations for salary sacrifice – i.e. a worker cannot sacrifice below the statutory rate
  • How will you communicate to your workers?

This is new territory for both employers and workers.

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