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Blog - Published 2nd November 2016

What is the difference between the National Minimum Wage and the National Living Wage?

The National Living Wage and the National Minimum Wage
In a recent article published by Retail Gazette, Menzies Head of Retail Roberto Lobue supplies the comments on the difference between the National Minimum Wage and National Living Wage.

What is the National Minimum Wage and the National Living Wage?

In answer to the obvious question, there is no significant difference between National Minimum Wage and National Living Wage. The National Minimum Wage is the minimum pay per hour most workers are entitled to by law.

The Government’s National Living Wage was introduced on 1 April 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.

Separately, there is also a voluntary Living Wage, which is calculated annually by the Resolution Foundation, a not-for-profit research and policy organisation. 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. It also has a separate higher London rate.


How do both of them affect retailers, looking forward to further rises in each until 2020?

Roberto Lobue - Menzies AccountantFurther rises expected in 2020 will potentially have a large impact for retailers.

The Low Pay Commission (LPC) submit a report to the Government each October making recommendations on the future level of the National Living Wage and National Minimum Wage rates. Their analysis revealed that the retail sector accounts for just over a fifth of workers over age 16 on the minimum wage at present and, together with the hospitality industry, accounts for nearly half of all workers on the lowest pay.

The hospitality sector, is currently the biggest minimum wage employer with 353,000 members of staff aged over 16 earning the minimum wage – a quarter of the total. Retailers employ 300,000 according to the LPC, or 21.4% 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% increase on the current £7.20 level. So, over the next 4 years, retailers are going to see a 25% increase on a lot of their staff costs.


Why are so many retailers reporting a struggle with the living wage when it is voluntary?

frs102-goodwillRetailers must comply with the National Living Wage, which is currently £7.20 an hour, and is likely to increase by 25% over the next four years. The voluntary Living Wage is higher still at £8.45 an hour.

Currently, many retailers are finding themselves in a difficult position in an extremely competitive market, with increasing pressure on margins. This, coupled with post-Brexit concerns, the introduction of the Apprentice Levy, ongoing issues with Business rates reform and general increased competition, has left many retailers facing difficult decisions about whether they should cut jobs or pass on costs to consumers.


Has the voluntary living wage been effective in raising the levels of pay?

frs102-retailIt is currently not clear whether the voluntary Living Wage has been effective in raising levels of pay. In 2014, there were 900 organisations signed up as accredited Living Wage Employers. In 2016, this number has increased to nearly 3,000, highlighting the increased awareness of pay issues. 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.

Roberto Lobue is the Head of Retail at Menzies. His comments on the difference between the National Minimum Wage and National Living Wage were featured in Retail Gazette.

For more information on the implications of the National Minimum Wage and the National Living Wage, please contact Menzies Head of Retail, Roberto Lobue by email rlobue@menzies.co.uk or phone on 01252 894915.

Find out more about Menzies Retail sector expertise.

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Roberto Lobue - FCA

Partner

Roberto Lobue is a Menzies Partner with a wealth of audit and compliance experience. Roberto also provides international accountancy and tax advisory.