The aim of the Living Wage is to provide all workers (over the age of 25) with a high enough wage to have a “normal” standard of living.
The aim of the Living Wage is to provide all workers (over the age of 25) with a high enough wage to have a “normal” standard of living. The plan is that by 2020, someone aged over 25 working 35 hours a week and previously earning October’s minimum wage of £6.70 will see their wages go up by around £4,000 a year. The Living Wage is expected to boost the salary of six million people, so clearly this will impact on the salary bill for a large number of organisations.Hourly rates will start at £7.20 and rise to £9 an hour by 2020, replacing the £6.70 minimum wage. This could mean a pay rise for millions of people, but critics say it could also cost thousands of jobs. To support businesses in understanding the legislation and the impact it might have for them, I have summarised the key points below:
How much is the National Living Wage and when will it take effect?
The Living wage is being introduced in stages and will be £7.20 an hour from next April, replacing the £6.70 minimum wage. It is planned that the hourly rate will increase each year with the figure rising to £9 by 2020.
Will everyone receive the Living Wage?
No, it’s only for over-25s.
For staff over the age of 25 and currently on the national minimum wage they will receive an extra 50p per hour.
What about staff who are under the age of 25?
The change won’t affect people aged 24 and under currently on the minimum wage.
Under 25’s will continue to receive the National Minimum Wage applicable to their age group.
How will the National Living Wage be paid for?
The theory is that businesses will be helped to make the changes to wages and the government has said Corporation tax is being cut by two per cent to 18 per cent by 2020. Employers will be able to reduce the amount of National Insurance contributions (NICs) they pay for their employees by 50% up to £3,000.
Any other downsides?
The Officer for Budget Responsibility predicts that 60,000 people will lose their jobs as a result of the changes. This is partly because they believe it will mean firms recruit more under-25s, who will be on a lower rate.
Isn’t there already a living wage?
Yes, but it’s up to employers to decide if they want to pay it or not.
The current Living Wage for London is £9.15 an hour, lower than what the Government says its National Living Wage will be by 2020. Elsewhere the rate is £7.85 an hour, more than what has been proposed in the Budget.
* Please note the figures given are for outside of the London area.
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