On 1st April 2016 the new National Living Wage (NLW) becomes law – comply or face a maximum fine of £20,000 per employee

On 1st April 2016 there’s a new compulsory minimum pay rate of £7.20 per hour for employees aged 25 and over – it’s called the National Living Wage (NLW) – this new NLW will change every year on 1st April.

The current National Minimum Wage (NMW) for those aged under 25 will continue to apply (NMW rates change every year on 1st October).

From 1 April 2016, the national minimum/living wage rates are as follows:

Workers aged Rate from 1 April 2016
25 and over £7.20
21 to 24 £6.70
18 to 20 £5.30
16 and 17 £3.87

Employers will need to ensure they know what changes they should apply to their payroll before the new legislation comes into effect to avoid penalties. To ensure you’re using the correct legislation, you must install your Sage 50 Payroll software year-end update before 1 April 2016.

Penalties for failure to comply

The penalty for non-payment of the NLW will be 200% of the amount owed, unless the arrears are paid within 14 days.

There’s a maximum fine of £20,000 per employee for non-payment. In addition, employers that fail to pay the NLW will be banned from being a company director for up to 15 years.

Who will be entitled to the National Living Wage?

Workers covered are:

  • employees
  • most workers and agency workers
  • casual labourers
  • agricultural workers
  • apprentices who are aged 25 and over

When should I pay the NLW?

The NLW comes into effect on 1st April 2016 rather than the start of the new tax year (6th April 2016), which means your employees must be paid the correct rate from 1st April 2016.

For the majority, this will fall into the first pay period of the new tax year. However, if you have a week 53 this year, you will need to ensure you’re paying the NLW rates.

For pay periods that overlap 1st April 2016, the old rates should be used, not the new rates. E.g. if you pay your employees weekly on Friday 1st April 2016, you should use the old rates, as the pay period runs from Monday 28th March 2016 to Sunday 3rd April 2016. When you pay your employees on Friday 8th April 2016, you must use the new rates.

If you pay your employees monthly on Monday 4th April 2016, you should use the old rates, as the pay period (tax month) runs from 6th March 2016 to 5th April 2016. When you pay your employees on Monday 4th May, you must use the new rates.

If you have a week 53 in the 2015/2016 tax year, you need to understand your dates. Note: Monthly paid employees don’t have a week 53.

For more information see the following Ask Sage article.

Free HMRC webinars

HMRC are running a number of free webinars on the NMW and the new NLW in March 2016 to help employers understand the change. Details of dates and times below:

4th March at 9am     National Living Wage & National Minimum Wage for employers

4th March at 1pm     National Living Wage & National Minimum Wage for employers

9th March at 11am   National Living Wage & National Minimum Wage for employers

9th March at 1pm     National Living Wage & National Minimum Wage for employers

14th March at 4pm   National Living Wage & National Minimum Wage for employers

Microphones and webcams are not needed to take part – just click the links to register and HMRC will send out the invitations to join, it’s that simple.

For more information on the National Minimum Wage, please refer to HMRC’s website here. More information about the National Living Wage can be found on the Gov.uk ‘Living Wage’ website here.

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