As you will have no doubt seen in newspaper headlines and Government advertising billboards, there is a 'new' rate of pay coming in - the National Living Wage. In this blog, we look at what this change is and what it will mean for businesses.

There are currently four different hourly rates of National Minimum Wage (NMW) for different categories of worker:

1. Standard rate for workers aged 21 or over: £6.70
2. Development rate: workers aged between 18 and 20 inclusive: £5.30
3. Young workers rate: £3.87
4. Apprentice rate: £3.30

However, from the 1 April 2016, a 5^th category of worker will be introduced which will see those aged 25 and over being paid the new National Living Wage (NLW). Chancellor George Osborne has said, "The new National Living Wage is an essential part of building the higher wage, lower welfare, lower tax society that Britain needs."

The NLW will affect workers aged 25 and over and will require employers to pay them at a rate of £7.20 per hour. It is expected that this will rise to in excess of £9 per hour by 2020.

However, this new title for what is basically a change to the NMW, might lead to some confusion given the similarity in title to another wage rate. It is important that this new NLW is not confused with the Living Wage which is set by the Living Wage Foundation, which recommends that employers pay their employees what they class a 'living wage', i.e. one which a worker should be able to live on taking into account inflation and the costs of living. The current Living Wage rates are £8.25 per hour for workers across the U.K., with a higher rate of £9.40 for those in London.

The NLW should also not be mixed up with the Glasgow Living Wage which is currently set at £7.85 per hour.

Businesses that pay the National Living Wage or the Glasgow Living Wage are able to class themselves as '(Glasgow) Living Wage Employers', whereas those who merely meet their statutory requirements of payment the NMW and NLW are not able to get this badge.

Whilst these different options can seem rather confusing for employers, the important one to focus on is the NLW. It is against the law for an employer to pay below the NMW or NLW. The NMW (and the NLW when it comes in) is enforced by HMRC and employers can be subject to a penalty of up to ?20,000 for each employee who has been paid below the minimum wage. It is also a criminal offence to fail to pay the NMW.

The higher rate of pay will impact on businesses, and it is estimated that these costs could be in excess of £1.1 billion in the first year alone. Businesses need to ensure that their records and system are up to date, so that any worker who is entitled to a higher rate of pay receives it from 1 April 2016, as well as communicating these changes to staff.