National living wage
In its budget in July 2015, the government announced that it would introduce a premium on the national minimum wage for all workers aged 25 and over. From 1 April 2016, all workers aged 25 and over will be entitled to minimum pay of £7.20 an hour. From thereafter the Low Pay Commission will make annual pay recommendations to the government as to the amount of the national living wage.
Who does it apply to?
The national living wage will apply to all workers aged 25 or over. A worker is generally someone employed under a contract of employment or a person engaged under a contract to personally do or perform work or services for another. This, from a construction context, includes the following:
- agency workers (agencies are responsible for ensuring that agency workers are paid the national living wage).
- apprentices (apprentices aged 25 or over are entitled to the national living wage).
- overseas workers (overseas workers include anyone working in the UK for however short a period and those who ordinarily work in the UK where they are temporarily working abroad).
- casual workers.
Work experience placement students are not entitled to the national living wage. This concerns placements which do not exceed one year undertaken by students as part of an education course. However, it is worth noting that students from universities from elsewhere in the European Union are entitled to the national living wage.
Interns, or work experience placements where the internship or work experience falls outside an individual’s education, will attract the national living wage, provided the individual concerned can be classed as a worker.
“An employer can commit criminal offences for more serious and dishonest breaches of the rules and can be subject to severe criminal penalties”
Calculating the national living wage
In construction, the following elements of pay count towards the national living wage – basic pay, bonuses and commissions, and contributions towards the cost of accommodation. Benefits in kind (save for contributions towards accommodation costs), employer loans, advances of wages, pension contributions, redundancy payments, overtime payments (the excess paid for overtime is disregarded), and expenses, do not count towards the national living wage.
Deductions from workers’ pay packets in connection with their employment reduce the level of pay determining whether the level for the national living wage has been reached. This would include deductions to pay for tools or uniforms. However, deductions for tax, national insurance, or as a result of worker misconduct, do not reduce the level of pay in determining whether the national living wage has been reached.
These rules are complex and depend on whether the worker is considered to be doing time work, salaried hours work, output work, or unmeasured work. It is worth noting a number of rules, however.
Time spent travelling to work from home is not included. Training approved by the employer is included. This includes attendance by a worker at a place other than their usual place of work to partake in training approved by an employer (note that travel time to and from the place of work and training venue is included). Time spent on call or on standby is also included.
Employers must keep sufficient records so that all the pay received by a worker within a particular reference period can be kept within one document. This document must detail the different elements which make up the worker’s pay. These records are very important as it is assumed that the employer has not paid the national living wage unless the employer can prove otherwise.
HMRC is responsible for enforcement. It can be initiated by complaint from workers or third parties, or by HMRC directly targeting employers in low paying sectors. Where HMRC finds there has been a breach, they will issue underpayment notices and impose a penalty. This penalty will increase from 100% of arrears to 200% of arrears from 1 April 2016, set at a maximum of £20,000 per worker.
An employer can commit criminal offences for more serious and dishonest breaches of the rules and can be subject to severe criminal penalties. From 1 April 2016, a director of a non-paying company can be disqualified from being a director for up to 15 years. Employers can also be publicly named by BIS for non-compliance.
It is clear that the implementation of the national living wage will have a wide-reaching impact on the construction industry. For a full time worker aged 25 or over, it will increase their annual pay by £1,200. The increased severity in the sanctions which will be imposed for employers flouting the rules, together with the increased spending by the government on enforcement, will certainly make those wanting to take a chance think twice.
With the construction industry making slow recovery and output decreasing by 0.2% in the first quarter of 2015, the impact of these changes could be substantial on the industry, with additional costs hitting contractors’ profit. Employers will have to look carefully at how they can limit the effects of the changes on their businesses and more widely on the recovery of the industry as a whole.