The new National Living Wage comes into force today – but what does it mean for workers and employers?

What is it?

The National Living Wage is the new mandatory national minimum wage set at £7.20 per hour for everyone 25 and over – 50p higher than the previous minimum wage of £6.70, which will still apply for those aged between 21 and 25.

However, it still differs from the voluntary living wage, which stands at £8.25 – or £9.40 an hour within London. Employers can choose to pay this higher level to their employees, but are not required to.

What are the benefits?

According to research by The Resolution Foundation thinktank, 4.5 million employees will benefit in 2016, rising to 6 million in 2020. It is thought that the positive impact will be most keenly felt in the hospitality and retail industries, which traditionally rely on cheap labour.

And the downsides?

The new Living Wage excludes those under 25, meaning that anyone between the ages of 21 and 25 will potentially be worse off than their peers in the same job. According to government Minister, Matthew Hancock MP, this was an active choice:

“This was an active policy choice… Anybody who has employed people knows that younger people, especially in their first jobs, are not as productive, on average. Now there are some who are very productive under the age of 25 but you have to set policy for the average. It was an active choice not to cover the under 25s.”

There is also the likelihood of a decrease in employment in the long run. The Office for Budget Responsibility has estimated that by 2020 there will be 60,000 fewer jobs as a result of the National Living Wage, due to businesses being unable to pay the higher rate to their staff and being forced to cut jobs as a result.

01/04/2016