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Living Wage Requires Payroll Planning, Says MMS

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Living Wage Requires Payroll Planning, Says MMS

July 08
05:40 2016


Katie R picThe introduction of the National Living Wage in April added another layer to an already complicated system of minimum pay rules. With many of Scotland’s catering and hospitality firms facing an increased wage bill, Katie Lamb sets out the rules they need to abide by in order to avoid being fined – or worse.



What is the National Living Wage (NLW)?

The NLW is a new higher rate of National Minimum Wage (NMW) for workers aged 25 and over, which is expected to boost the pay of approximately six million people across the UK. It should not be confused with the Living Wage Foundation, a campaigning organisation which promotes a voluntary minimum hourly rate of pay, calculated according to the basic cost of living.

Is it legally enforced, and are there penalties?

Yes. The government has announced that a tough stance will be taken on non-compliance, with penalties of 200% of arrears owed to workers – up to a maximum of £20,000 per worker – if they have been underpaid.

On top of that, cases can be referred for criminal prosecution and the worst offending firms can be and named and shamed on a website that is likely to be the first hit of the business name on a Google search, while company directors can be barred from office for up to 15 years.

What are the current rates of NMW and NLW?

The NMW is currently set at £6.70 per hour for workers aged 21 or over, and workers aged 25 are now entitled to a premium of 50 pence per hour on top of that, totalling £7.20 per hour. This premium is not fixed and is set to increase with a view to the NLW reaching £9 per hour by 2020.

My workers receive a generous amount of tips on top of their wages. Do these count towards the NLW?

No. As with the NMW, tips and other extra elements of pay – including certain allowances and benefits – are specifically ruled out of employers’ calculations. In other words, basic wages must comply with the NLW and NMW, regardless of tips.

I have workers who are over 25 but aren’t being been paid the NLW – what should I do?

If you have paid a worker below the rate they are legally entitled to, any arrears due must be paid immediately. Checks of payment records, which should be retained for three years, can be carried out at any time by HMRC officers. Any breach identified will require arrears to be paid immediately, with the risk any of the punitive measures above being implemented.

What about workers under 25? Has their pay entitlement changed?

No. The National Minimum Wage will continue to apply for those aged 16 to 24 at their respective rates per hour, as will the apprenticeship rate. Of course, the issue of pay differentials that may arise as a consequence between workers doing the same job is an issue for employers to consider.

How should businesses, such as hotels and cafes, cope best with all this legislation?

As there is now an extra ‘birthday’ to take into account for employees – and another rate to be updated annually – it is now more important than ever to keep an organised payroll system, which takes into account the ages of all staff and updates pay rates as necessary.

Katie Lamb is an employment lawyer with Maclay Murray & Spens LLP and a is member of the firm’s Food and Drink team.

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Catering Scotland

Catering Scotland

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