Living or Minimum wages: what do you have to pay?
What’s the difference between a Minimum Wage and a Living Wage? Well, it depends who you ask.
The Government is introducing a compulsory Living Wage next year, although critics are saying that’s just changing the name of the Minimum Wage – and it will be lower than the current (voluntary) Living Wage.
Currently, employers have to pay a Minimum Wage of ￡6.50 an hour for any employees over 21. That rises to ￡6.70 an hour in October and then to ￡7.20 an hour in April 2016, when it will be called the Living Wage. After that, it will increase each year to ￡9 an hour in 2020.
There are lower Minimum Wage levels for people under 21 and the new Living Wage will only be for employees aged 25 at least. It’s not clear yet whether the Minimum Wage levels for people under 25 will continue at the same rate or higher in 2016.
There is also a voluntary Living Wage campaign, which might change name to avoid confusion with the new compulsory Living Wage. That’s currently ￡7.85 an hour outside London and ￡9.15 an hour in London.
So far, so confusing. Let’s set out what this means in terms of pay and start with the compulsory amounts, which depend on how long your working week is:
- Now ￡6.50 an hour is an annual salary of ￡12,675 for a 37.5-hour working week and ￡13,520 for a 40-hour working week.
- From October ￡6.70 an hour means salaries of around ￡13,000-￡14,000.
- From April 2016 ￡7.20 an hour involves ￡14,000-￡15,000 pay levels.
- In 2020 ￡9 an hour means salaries of ￡17,500-￡18,700.
So what does all this mean in reality? From April, every employee aged 25 will have to be paid at least ￡14,040 for a 37.5-hour working week or up to ￡14,976 for a 40-hour working week.
That’s only 9 months away and retail, catering and hospitality employers are raising concerns about having to increase pay levels – especially because it’s about ￡1,000 per employee more than October’s Minimum Wage levels and they did not know this pay change was coming.
If you currently pay everyone aged 25 or older at least ￡15,000 (or less if your working weeks are under 40 hours), then it won’t affect you.
I'll provide updates about this when the details become clear, especially the compulsory pay rates for employees under 25.