The National Living Wage & National Minimum Wage explained

2nd November 2016

Ben Stevens

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Sadiq Kahn announced the new London Living Wage this week, bringing the recommended level of minimum wages in London up to £9.75, with the aim of reaching £10 per hour during his mayoralty.

This is great for workers; but countless businesses have stated they were already struggling with the National Living Wage — or is it the National Minimum Wage? Or are they talking about the real Living Wage?

Later this week the House of Commons will debate the “Living Wage week and the implementation of the National Living Wage”, aiming to clarify not only the terminology, but the real world implications of each of these rates.

With the debate reaching far wider than the Commons and making the news nearly every week with difference publications using different terminology, the Retail Gazette has taken a look at the issue in order to clarify what‘s what.

The National Minimum Wage

This is a rate of pay per hour, set by the government and reviewed every year, which it is illegal to pay any working person less than.

It came into force in 1999 and is regulated by the Low Pay Commission (LPC), an independent body which advises the government on rates of pay per age group every year.

Workers must be at least school leaving age (16 by the last Friday in June of the school year) to get the National Minimum Wage.

As of October 1, 2016, workers aged 18 and under are entitled to £4 per hour. 18 to 20-year-olds get £5.55, 21 to 24-year-olds are entitled to £6.95 an hour and those over 25 get £7.20 an hour.

The National Living Wage

This is where many people get confused. Prior to former Chancellor George Osbourne‘s announcement of the National Living Wage, the term Living Wage was reserved for a recommended figure, set by the Resolution Foundation, which was voluntary for employers to pay.

However, the government has recently taken to rebranding the National Minimum Wage (NMW), as the National Living Wage (NLW) — meaning it actually has nothing at all to do with the Living Wage.

“There is no significant difference between National Minimum Wage and National Living Wage,” Menzies LLP head of retail Roberto Lobue said.

“The government’s National Living Wage was introduced on April 1, 2016 for all working people aged 25 and over, and is set at £7.20 per hour.

“It‘s effectively just a premium on top of the National Minimum Wage, which only applies to people over 25 years of age. Both are compulsory for employers.

“Retailers employ 300,000 according to the LPC, or 21.4 per cent of the total.

“When the National Living Wage was first announced, the government said it would reach at least £9 an hour by 2020. That‘s a 25 per cent increase on the current £7.20 level. So, over the next four years, retailers are going to see a 25 per cent increase on a lot of their staff costs.”

The (voluntary) Living Wage

This is where Sadiq Kahn‘s announcement is relevant. The London Living Wage is part of the recommended, or voluntary Living Wage.

In London this stands at £9.75 an hour, and in the rest of the country it is £8.45 an hour. Currently, over 3000 employers volunteer for the Living Wage, with over 1000 of those based in London.

“There is also a voluntary Living Wage, which is calculated annually by the Resolution Foundation, a not-for-profit research and policy organisation,” Lobue said.

“It is overseen by the Living Wage Commission and is promoted by the Living Wage Foundation. These bodies include representatives from employers, trade unions, civil society and independent experts. It is completely voluntary and does not distinguish between age groups.

“Many organisations are using the accreditation as a way of demonstrating their commitment to being an ethical employer and there are studies which suggest that adopting the voluntary living wage has helped cut absenteeism and improve retention of staff.”

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