In Scotland the Scottish Government provides funding to the Scottish Living Wage Accreditation Initiative which encourages employers to offer their employees more than the National Minimum Wage. The level of this offering is set by the Living Wage Foundation rather than the UK Government and is a voluntary scheme, currently 331 employers are accredited. The Living Wage is presently set at £7.85 per hour. The current National Minimum Wage for employees over 21 is £6.70 as of 1st October 2015 (an increase from £6.50).

In a recent and rather unforeseen announcement, Chancellor George Osborne confirmed that there will be a replacement of the National Minimum Wage with the National Living Wage from April 2016. This will mean a mandatory increase in Scotland from a wage of £6.70 per hour to £7.20 per hour for workers over the age of 25. The overall aim of the Government is that this will increase each year to amount to 60% of the median wage across the UK; this would mean it would reach £9.00 per hour by 2020. The words ‘living wage’ have connotations of a more equitable offering than the minimum wage, but effectively what the Government has created is a new minimum wage for over 25s, with £6.70 remaining the rate for 21 to 24 year olds.

This increase could have a significant impact on employers and they should take this opportunity before the statutory enforcement, to assess the financial impact this may have on their payroll and overall business. It could also have a knock on effect for employers who have already become accredited as living wage employers. It seems likely that for the ‘Living Wage’ to retain its status of a more generous and voluntary offering of employers an increase will have to be contemplated.

We do not yet know what the statutory framework for the Government’s agenda will look like. In the present situation calculating whether National Minimum Wage has been complied with can be a complex process and forms the basis of many employment disputes. However, the National Minimum Wage Regulations do give some indication of the payments which should not be taken into consideration when assessing whether or not National Minimum Wage has been paid. Included in this list are ‘payments attributable to a particular aspect of the working arrangements…that are not consolidated into the worker's standard pay unless the payments are attributable to the performance of the worker …’. If ‘performance’ is to be interpreted as a reference solely to successful performance resulting in a reward payment, this rule can be understood to exclude allowances paid to a worker in addition to their basic rate in respect of things done over and above their normal duties, such as working unsociable hours or in dangerous conditions.

The policy aim behind excluding such allowances in calculation minimum wage is unclear; nevertheless it seems likely that the Government will choose to echo this rule in the formation of the new National Living Wage Regulations. This would have a significant impact, particular for employers in the care sector who may currently supplement a basic rate of pay with a percentage shift allowance in respect of overnight stays. The basic rate required by employers in this sector would be significantly higher and any shift allowance would be calculated on that higher rate. It therefore may be a more sensible option for such employers to consider moving away from a system of shift allowances and simply paying a higher hourly rate for overnight stays. Martin Green, chief executive of Care England, has stated that his organisation supports the living wage concept, but a lack of government funding in the care system will leave the sector disadvantaged by these changes.

EY ITEM Club, the independent economic forecasting group, have labelled the change as ‘risky’, voicing that it could in fact hurt jobs as employers will be forced to cut back on labour costs, and investment will decrease. They have claimed that the living wage has been promoted as a counter to cuts in tax credits – but it will not patch over this loss for affected families.

A recent high profile employer who has adopted the 2016 Living Wage is LIDL, which has announced that it will start to pay all of its UK employees the National Living Wage from next month. This has left other UK chain supermarkets being called upon to follow in their footsteps. Although such a quick change may be feasible for a large organisation, smaller employers will have much to consider in the lead up to April of next year.

We’re always happy to discuss things further.
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