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National Minimum Wage, Living Wage, National Living Wage – who gets what

The National Minimum Wage (NMW)

  • The National Minimum Wage Act was introduced with effect from 1st April 1999.
  • A number of Regulations were made under the Act and, in April this year, these were consolidated into the National Minimum Wage Regulations 2015.
  • The Low Pay Commission (LPC) is tasked with recommending changes in the hourly rates.
  • Currently there are different hourly rates for apprentices (£2.73), workers under 18 (£3.79), workers between 18-20 (£5.13) and workers 21 and over (£6.50).

The Living Wage

  • A non-statutory arrangement was originally set up by Trade Unions and the Mayor of London in 2004.
  • Their work led to the establishment of a body to accredit employers and promote the Living Wage known as the Living Wage Foundation. They calculate the Living Wage according to the basic cost of living in the UK and currently assess it to be £9.15 an hour in London and £7.85 an hour elsewhere. This is and remains a voluntary scheme.

The National Living Wage (NLW)

  • It was announced in this month’s Summer budget that workers aged 25 and over, will be entitled from April 2016 to the National Living Wage (NLW) which will be a statutory entitlement and will be paid at a higher rate than the NMW.
  • The NLW will be calculated with reference to median earnings, a method recommended in the 2014 Review carried out under Professor Sir George Bain (who was the first chair of the LPC) as a way of strengthening the NMW and as a step towards striking a better balance between short-term flexibility and medium-term ambition.

NMW and NLW – the difference in calculation

  • The LPC has traditionally made recommendations on the level of the NMW at a level designed to protect as many low-paid workers as possible without hurting jobs or the economy.
  • The Government has issued its remit for the Low Pay Commission for 2016. The stated aim for NMW rates remains unchanged. The stated aim for the NLW is that it should increase to reach 60% of median earnings for the over 25s by 2020, subject to sustained economic growth.
  • The NLW will be paid by way of a premium on top of the NMW.  The Government will set the first premium in April at 50p bringing the total National Living Wage to £7.20 in April 2016 – a rise of 70p relative to the current NMW rate, and 50p above the NMW increase coming into effect in October 2015.
  • The LPC is tasked with setting the premium for October 2016 and an indicative premium rate for April 2018.
  • In setting this premium the LPC is asked to consider the pace of the increase, taking into account the state of the economy, employment and unemployment levels, and relevant policy changes.

Going forward

So, from April 2016, workers who are 25 or over will be entitled to the National Living Wage. All other workers will continue to be entitled to the National Minimum Wage. However a living wage will no doubt remain a demand for all workers and the campaign for the higher non statutory Living Wage will continue.

More infomation

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