National living wage
The national living wage (NLW) came into effect on 1 April 2016. It requires all employers to pay all workers aged 25 or over a minimum of £7.20 an hour. This replaces the national minimum wage (NMW) of £6.70 for these workers, although the NMW will continue to apply for those aged 21 – 24.
In addition, HMRC has stated that the NLW rate will be updated on the 1 April each year, whilst the NMW rate will continue to be changed on 1 October each year.
This added level of complexity means that employers will need to be vigilant around the birthdates of employees who are aged 17, 20 and 24, and also for apprentices, to ensure that they are compliant with all respective minimum pay rates.
A good example of this would be where an employee aged 24 on NMW turns 25 in November. Under the current rules they would have four different rates of pay in a seven month period.
Care will also need to be taken by employers to ensure that neither the NLW nor NMW rates are compromised in any way. Special attention should be given to salary sacrifice schemes and time recording for employees, as well as any other deductions from pay, to ensure that these do not result in the employee being paid below the required levels. Failure to do so can result in the repayment of the amounts deducted back to the employee and penalties.
Further to this, the calculation of penalties on those who do not comply with either NMW or NLW will rise from 100 per cent of arrears to 200 per cent. However, the overall maximum penalty of £20,000 per worker remains unchanged.
An additional cost facing larger employers will come in to effect from 6 April 2017. The Government is implementing the apprenticeship levy to help fund 3 million new apprenticeships by 2020. This will result in employers being required to pay 0.5 per cent of their wage bill as their contribution to apprenticeship funding. A £15,000 annual allowance will be given to all employers such that only those that have an annual wage bill in excess of £3m will be required to pay.
HMRC has recently confirmed that a wage bill for these purposes will be calculated as the amount liable to employers’ national insurance contributions (NICs).
It has also been confirmed that connected companies will be treated as one for the purposes of the levy and, therefore, a group of five connected companies with a combined £3.3m payroll will be required to pay.
Although the Levy doesn’t come in to effect until 6 April 2017, employers should start considering how this will affect budgets in the forthcoming year.
It is possible, for example, that some employers will find that they are now required to pay the apprenticeship levy due to the implementation of the national living wage.
For further information, please contact Graham Farquhar, or your usual RSM contact.