Making the Mechanics of the Living Wage work

From 1st April 2016, all workers aged 25 and over will be entitled to a new ‘Living Wage’ of £7.20 per hour. The minimum wage of £6.70 per hour remains for those employees aged between 21 and 24.

A worker’s hourly wage is calculated by taking the amount of pay received in any pay reference period, or earned in that period but not paid until the next reference period, divided by the number of hours they have worked in that same period. A pay reference period is based upon the intervals in which a worker is paid, i.e. weekly or monthly. The following elements of pay count towards the Living Wage:

• Basic salary

• Bonus, commission and other incentive payments which are related to the worker’s performance. Please note that any premium paid for overtime or shift work does not count towards the calculation of the Living Wage.

• Piecework payments.

• Accommodation allowances.

There may therefore be many workers who do not currently receive the Living Wage. HM Revenue & Customs enforces the minimum wage and can impose the following on an employer if a worker does not receive the correct wage:

• A demand to pay any arrears of the minimum wage to that worker; and

• A penalty to the Secretary of State. The Government has increased the financial penalty percentage that employers pay for breaking minimum wage law from 100 per cent to 200 per cent up to a maximum penalty £20,000 per worker. The increase came into effect on 1 April 2016.

It is therefore very important to ensure that workers receive the correct National Minimum and Living Wage.

It has been claimed that the Government has spent £5 million on promoting the implementation of the Living Wage, to ensure that employers are aware of their obligations. Some commentators have claimed that this is to detract from the Living Wage Foundation’s claim that a wage of £8.25 per hour is actually the minimum wage a worker needs to live on (£9.40 per hour in London). Regardless, it remains to be seen what economic impact this new Living Wage will have on workers and employer alike.

If you would like to discuss your entitlements or obligations regarding the National Minimum or Living Wage, or any other employment-related matter, please do not hesitate to contact our Employment Team on 01908 660966, 01604 828282, or by contacting us here