How to implement the National Living Wage

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Terri Bethel, lead technical material author at the CIPP, asks what employers must include in their calculation when implementing the new National Living Wage.

The new National Living Wage comes into effect from 1 April 2016 and employers will have to ensure that hourly pay rates for affected individuals are increased in time. But what must you include in the calculation and when is the right time to do it? Are there any other implications to consider?

The National Living Wage (NLW) takes effect from 1 April 2016 at £7.20/hour and applies to adults aged 25 years or over. Although it has a different name and (currently) a different effective date from the National Minimum Wage (NMW), the NLW was introduced under the existing NMW legislation. So how it is calculated, policed (by HM Revenue & Customers) and increased (by recommendations from the Low Pay Commission) are all the same. More significantly from a practitioner’s point of view, this means everything we already know about handling the NMW can be applied to the NLW.

In fact, one way to approach implementing the NLW is to think of it as just another increase in the top adult NMW rate, albeit one that affects fewer workers. Employers and their agents have been implementing NMW increases each October for many years, presumably successfully. And the effective date switches to April for both NMW and NLW, as Budget 2016 has just announced.

Some employers and agents will have payroll software that handles everything for them – as long as it has been (or will be) upgraded to handle the new age threshold, minimum hourly rate and effective date. For others, the process may involve varying amounts of manual intervention. But however much of the process the software automates, practitioners need to be able to do the calculations manually, if only to confirm that the software is getting it right.

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Terri Bethel
Lead technical material author
CIPP
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