National Living Wage - what is it and what can workers expect?

Emma Wilkinson looks at the basic principles of National Minimum Wage entitlement and considers the possible implications for some workers

This article was originally published in the March/April 2016 issue of Adviser magazine and was correct at the date of publishing.

A reminder of the basics

The National Minimum Wage (‘NMW’) was introduced by the National Minimum Wage Act 1998 and came into force on 1 April 1999. It introduced a minimum hourly rate of pay for workers and has since become an integral part of workers’ rights in the UK.

The level of NMW is increased by the government (following recommendations from the Low Pay Commission) in October each year and the current rates are:

• 21–25 year olds - £6.70 per hour
• 18–21 year olds - £5.30 per hour
• 16–18 year olds - £3.87 per hour
• Apprentices - £3.30 per hour

The £7.20 NLW rate for over 25s will be introduced on 1 April 2016 and will increase on 1 April 2017. The yearly NLW rate increase will then synchronise with the annual NMW increase from October 2017.

NMW and NLW rates are payable to all workers (including agency workers) and apprentices. Members of the armed forces, family workers and voluntary workers are specifically excluded. BIS guidance on how to calculate NMW (or ensure that it has been calculated correctly) is available at www.gov.uk/government/publications/calculating-the-minimum-wage.

The NLW and the ‘living wage’ are not the same thing

The NLW, which is essentially an increased NMW band for those aged 25 and above, should not be confused with the ‘living wage’. This is a voluntary hourly rate set by the Living Wage Foundation (www.livingwage.org.uk). The Living Wage is calculated by the Centre for Research on Social Policy based on the level of pay which they have assessed to be necessary in order for workers to be able to have a minimum acceptable standard of living. This is currently set at much higher than the NLW, at £9.40 per hour for Greater London and £8.25 per hour outside London.

The voluntary living wage rates are reassessed annually in November.

In comparison, the government’s plan sets out an objective that the NLW for those aged 25 or above should rise to 60% of the average wage for that age group by 2020. At current wage rates, this would mean that the NLW would rise to £9 per hour by 2020.

What are the possible implications of the introduction of the £7.20 NLW rate?

It is difficult to determine exactly what the effect of the NLW rate will be. We are starting to hear about cases where employers who are dismissing staff as they reach 25 or varying terms relating to hours or other contractual rights in order to recoup increased wage costs but it remains to be seen whether these are early overreactions or part of a wider trend.

What remedy will be available for breaches?

In order to recover the difference between pay received and NMW or NLW a claim can be issued either as a claim for unauthorised deduction from wages in the employment tribunal or as a claim for breach of contract in the county court (or in the employment tribunal but only when employment has terminated). It should be noted that the Deduction from Wages (Limitation) Regulations 2014 limit a claim for unauthorised deduction from wages in the employment tribunal to the two years before the date of issue of claim. Where a client has been paid less than NMW or NLW for a period of more than two years, a client should bring a claim for breach of contract rather than for unauthorised deductions from wages, in order to circumvent the two-year restriction, since a breach of contract claim can be taken back six years in the civil court (on termination of employment or where the employment is ongoing), or in the employment tribunal (on termination of employment). In terms of establishing a contractual right to statutory NMW or NLW, s28 of the National Minimum Wage Act 1998 provides that ‘in any civil proceedings’ it shall be presumed that an individual qualified for NMW or NLW at the relevant times, and the burden of proof is on the employer to show otherwise.

An employee who is dismissed for a reason related to entitlement to NMW or NLW, including the fact that they do, will or might qualify for it or for a particular rate of it, is automatically unfairly dismissed. Similarly, an employee or worker who has been subjected to detrimental treatment short of dismissal (such as a cut in hours or, for an agency worker who cannot claim unfair dismissal, not being offered further work) is able to bring a detriment claim.

Although the entitlement to different rates of NMW based on age is, by default, age discriminatory, the rules of entitlement are specifically exempted by statute from age discrimination protection and therefore cannot give rise to an age discrimination claim. However, dismissing or subjecting to detriment a worker because they have reached, or are about to reach, the age of 25 and will qualify for a higher rate of pay, would give rise to an age discrimination argument. It remains to be seen whether such dismissals or detrimental treatment will be a common occurrence.

Emma Wilkinson is the Senior Employment Expert in the Citizens Advice Expert Advice team.