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The National Living Wage – What do businesses need to know?

The following article has been extracted from Wales Online:

This Friday the National Living Wage – £7.20 per hour for workers aged 25 and over – finally comes into force.

It is predicted that some six million people will benefit from the legislation, but small businesses have warned implementation could be a challenge.

However, businesses that do not follow the rules could face fines of up to £20,000, so it is important to get it right.

Here is what you should know ahead of the implementation.

The basics

The Government has issued four pieces of advice to help businesses manage the impact:

• Check you know who is eligible in your organisation. That’s everyone who is 25 or older and who is already eligible for the National Minimum Wage. If you are still unsure find out on the gov.uk employment status page. There is a separate rate that applies to apprentices.

• Take the appropriate payroll action. There are a number of elements to take into account including tax and national insurance contributions, wage advances or loans, the type of work your employee does and your method of payment to them. You can find useful guidance in HMRC’s tutorials.

• Let your staff know about their new pay rate.

• Check your staff under 25 are earning at least the right rate of National Minimum Wage.

When to pay

Although the legislation comes into force on April 1, it doesn’t necessarily mean you have to start paying the new wage immediately.

The legislation works on the pay reference period system, which means if workers are paid weekly, the reference period is a week, and if monthly, a month. So, you must start paying your workers the rate that applies to them at the start of the relevant pay period.

This also applies when workers turn 25; you won’t necessarily have to pay them the new rate from their birthday, but from the start of the next pay period after their birthday.

Other considerations

You might have different pay scales in your business to reflect different skillsets or workloads. Although there is no legal requirement to keep these scales when the National Living Wage is introduced, it is worth considering the effect this will have on your staff in terms of motivation and morale.

Workers who already earn slightly more than the minimum wage, for example, might feel aggrieved that their pay is staying the same while those with less experience or responsibility are getting an automatic pay rise.

What if I don’t pay?

HMRC will have responsibility for enforcing the National Living Wage and National Minimum Wage, and will take firm action if the rules are not being followed.

Compliance teams will follow up on complaints from workers and will have the power to check your records to see if you are meeting your obligations. The Government has warned that businesses could face fines of up to £20,000 and directors could be disqualified for up to 15 years if found guilty of not paying the minimum wage. They will also be obliged to pay the arrears of all wages affected.

Though mistakes around incorrect payments can innocently happen, from Friday denying knowledge won’t cut it.

Planning for the future

When Chancellor George Osborne first announced the national living wage, he also stated that his aim was to increase it to £9 per hour by 2020.

If they haven’t already, businesses should start working out the total cost of having to pay the living wage up to 2020, which, after all, is only four years away.

This exercise could also help you work out a strategy to ease the burden of these increased costs over the long term.

Source: http://www.walesonline.co.uk/business/business-news/national-living-wage-what-businesses-11112569

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