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New national living wage has come into force: here’s what you need to know

It has already been estimated that by 2020 the increase will benefit up to six million workers

Workers over the age of 25 are now legally required to earn a minimum of £7.20 an hour as the result of the introduction of the national living wage.

The national living wage, which was announced last summer as the flagship statement of the budget, marks a 7% increase on the previous minimum wage of £6.70, which workers aged 21-24 are still entitled to. If the government’s plans are to become reality, the minimum wage could be at £9 per hour by 2020, which would represent a rise of 60%.

The business impact

There has been plenty of time for businesses to prepare for the implementation of the national living wage, with big name companies such as IKEA and Lidl working on salary budgets and adjusting payroll to facilitate the legally required changes.

Charles Cotton, performance and reward adviser at the CIPD, said the new wage will only be a success if businesses are able to maintain the higher rate for lower paid workers without cutting other pay-related benefits. He added that the retail and hospitality industries are likely to be the hardest hit in adapting to the new living wage.

Better life?

Torsten Bell – director of the Resolution Foundation, a thinktank that works to improve quality of living for lower income workers – said that while the wage increase is a positive move, there is still work to be done to improve low pay as a whole. He added that the new minimum wage was a big part of addressing lower incomes but that the government should be prepared to work closely with businesses to reduce the country’s reliance on low-paid jobs.

Chris Jones, CEO of the City & Guilds Group, explained that with under-25s excluded from the national living wage, there is the worry that businesses will rely heavily on apprenticeships as a way to source cheap labour rather than focusing on individual development as part of a strategy to help people build careers.

Prime Minister David Cameron recently said that the minimum wage for 21- to 24-year-olds will rise to £6.95 per hour in October this year as part of a response to recommendations from the Low Pay Commission.

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