NEWS

What Is The New National Living Wage? How The April 2016 Change Could Affect You

All you need to know about the change to the minimum wage in April.

30/03/2016 13:52 | Updated 01 April 2016

Up to one in three workers in some parts of Britain will receive a pay rise when the new 'national living wage' comes into effect today [Friday], according to a new study.

The new legal requirement - which is effectively a new minimum wage - has been called a "hugely ambitious policy", but some areas will benefit more than others from the new £7.20 an hour rate and adults under a certain age won't get it at all, the Press Association reported.

Here are the facts you need to know:

What is the national living wage?

It is a new compulsory minimum wage premium from the British government - a new higher legal minimum that employers have to pay their staff.

It applies only to workers over 25, and is £7.20 an hour or around £15,000 a year if you work a 40-hour week.

The national living wage is a significant pay increase for those entitled to it - the previous minimum wage for people over 21 is £6.70 an hour - around £13,900 a year if you work a 40-hour week. 

 

The new legal requirement - which is effectively a new minimum wage - has been called a "hugely ambitious policy", but some areas will benefit more than others from the new £7.20 an hour rate and adults under a certain age won't get it at all, the Press Association reported.

Here are the facts you need to know:

What is the national living wage?

It is a new compulsory minimum wage premium from the British government - a new higher legal minimum that employers have to pay their staff.

It applies only to workers over 25, and is £7.20 an hour or around £15,000 a year if you work a 40-hour week.

The national living wage is a significant pay increase for those entitled to it - the previous minimum wage for people over 21 is £6.70 an hour - around £13,900 a year if you work a 40-hour week. 

Rui Vieira/PA Wire

When does it come into force?

From 1 April 2016. 

How is it worked out?

The Government's new national minimum wage is calculated based on median earnings - it ensures that everyone is being paid at least 55% of the median or average wage.

The Government also plans to raise this to at least 60% of median earnings by 2020 - meaning a rise to around £9 per hour by 2020. 

Is it different to the 'living wage' I've heard about already?

Yes. A group called the Living Wage Foundation has been campaigning for employers to pay a living wage - by which is means a wage that will allow people to afford the cost of living - for 15 years.

This 'living wage', which is voluntarily paid by some companies like HSBC, Google and Transport for London, is calculated based on the cost of living, and is higher than the Government's national living wage.

The living wage is £8.25 an hour for people outside of London, and £9.40 an hour for those in London.

 

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How many people will benefit?

Across Britain, one in six employees will be affected by the national living wage, with a total of 4.5 million people having an increase on Friday.

This includes around 1.8 million people earning under £7.20 who will get a direct pay rise, and another 2.6 minimum earning just over £7.20, who the Resolution Foundation assume will get a pay rise to differentiate between them and lower-paid workers. 

Will it make a difference where I live?

Torridge in Devon, Rossendale in Lancashire, Woking in Surrey and Castle Point in Essex were named as the areas most likely to benefit.

The Resolution Foundation said employers in these areas will see "significant" increases in their wage bill.

The biggest city to benefit is Sheffield, where over a fifth of employees will qualify for the higher wage, the report said.

Torsten Bell, director of the Resolution Foundation, said: "The national living wage is a hugely ambitious policy with the potential to transform Britain's low pay landscape.‎ Up to a third of workers will get a pay rise in national living wage hotspots, ranging from Canvey Island to Eastern Lancashire.

How about in London?

The new rate will have less impact in London and the South East, with just 3% of workers in the City set to have a wage rise on Friday, which the think tank said reinforced the importance of the voluntary living wage of £9.40 an hour in the capital and £8.25 in the rest of the country.

"Britain's new legal wage floor will be felt throughout the country, but its impact will be bigger in some areas than others. Relatively few employees will benefit in high-paying parts of Britain such as the City of London and Camden, reminding us of the need to see more employers sign up to pay the higher voluntary living wage.

Will businesses cope?

Bell says: "Of course pay rises don't come free so employers in some sectors and parts of the country will feel the pressure more than others.

"That's why it's vital that businesses and national, regional and local government make the successful implementation of the new legal minimum a priority." 

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