The impact of National Living Wage

The impact of National Living Wage

In the 2015 Summer Budget George Osborne announced that from April 2016 the Government would legislate for a National Living Wage in England and Wales for all employees aged 25 or over of £7.20 an hour, up from the £6.70 National Minimum Wage. "Britain deserves a pay rise and Britain is getting a pay rise" he said. But whilst this new provision might seem very favourable to employees who are currently paid the minimum wage, there are many legal consequences for employers and employees that may require careful and considered advice.

Concerns for employers

The obvious immediate concern for employers is that they will be paying a great deal more for their employees' labour. Whilst the National Living Wage will not be as high as the Voluntary Living Wage (currently at £8.25 for the same age group), many small to medium-sized employers are worried about the implications. In many sectors tendering for and successfully securing trading contracts is extremely competitive, and employees' wages are very finely balanced against the income received. The general response by these employers has been that they will (a) put the increased liability onto customers by increasing prices, (b) reduce their general headcount in the form of redundancies and/or (c) hire more employees under the age of 25, to whom the National Living Wage would not be applicable.

The Government has defended its position by stating that the increase in costs for employers will account for just 1% of profits, and employers will benefit from a 19% reduction in corporation tax and, for small businesses, reductions in National Insurance contributions.

But whatever the precise effect may be, there is no doubt that these employers may require advice on making redundancies, restructuring their workforce, altering existing contracts of employment and implementing the changes to their employees' pay legitimately. Employers should also remain alert to the possibility of allegations of age discrimination if they were to hire fewer employees aged 25 or over. The implications of incorrect or improper actions in these areas can be costly to an employer, both in terms of reputation and financially, and so careful advice should be sought to minimise the risk of any claims being made.

On the other hand, some larger employers have welcomed the announcement and have in fact been implementing the new rate of £7.20 an hour or, in some cases, exceeding it. For these employers, the National Living Wage has provided an opportunity to promote their corporate image and reputation.

In general, it is thought that the perception that this is currently an 'employer's market' (which has tended to be the case in recent years) will be altered and there will be more of a level playing field for employees.

Concerns for employees

Although many employees appear to benefit greatly from the National Living Wage, there are issues surrounding its implementation which may affect them to a greater extent.

Firstly, the implementations will in many cases require changes to employees' existing contracts of employment. As employers cannot unilaterally vary terms and conditions of employment without the consent of the employee, there may be a need to engage in a consultation process with employees in order to try and procure their agreement. Consultations are an important process and if not followed correctly there can be very costly consequences.

Additionally, employers may seek to offset the increase in cost by decreasing the availability of other employee benefits, for example, by reducing holiday entitlement to that of the statutory minimum. Employees who are faced with such proposed changes to their employment contracts should seek advice about the legality and effects of any such changes.

Finally, although the government has thus far indicated that those aged 25 or over will be entitled to the National Living Wage, the question of entitlement may prove to be more complex. There may be questions over entitlement to the National Living Wage, and advice will need to be sought in these circumstances to ensure that the employee does not end up short-changed.

Linked to this, and as explained above, some of those who stand to benefit from the new rate may feel that they have not been successful in securing employment on account of their being aged 25 or over. They may wish to consider an age discrimination claim in this respect, and question the legality of whether an employer's decision not to hire an employee entitled to the National Living Wage would constitute a fair reason not to hire them.


Since the announcement in the Summer Budget it has been clear that the National Living Wage will be controversial and the precise effects are as yet unknown. What is clear, however, is that both employers (of varying sizes) and employees will require careful advice regarding the changes.

At Clapham & Collinge we have a dedicated team of experts who are able to provide you with all of the necessary information, support and legal advice. For more information, contact our Norwich branch on 01603 693500, our North Norfolk branch on 01263 823398 or our South Norfolk branch on 01508 558685.