National Living Wage and
The Apprentice Levy
Presently the National Minimum Wage dictates the lowest wages that an employee can earn. It is calculated per hour and banded by age as follows:
|Year||21 and over||18 to 20||Under 18||Apprentice*|
|2016 (current rate)||£6.70||£5.30||£3.87||£3.30|
*This rate is for apprentices aged 16 to 18 and those aged 19 or over who are in their first year. All other apprentices are entitled to the National Minimum Wage for their age. The National Minimum Wage rates are usually updated in October each year.
National Living Wage
From 6 April 2016, for workers aged 25 and over the Minimum Wage will become the Living Wage and increase to £7.20 an hour. The Minimum Wage will continue to apply to workers aged 24 and under. This is a significant additional cost for employers and there will be a knock on effect where pay structures are based on age or length of service. Where possible, employers may pass this cost onto customers.
The Chancellor has stated his aim to increase the National Living Wage to £9 an hour by 2020, therefore there are significant increases still to come.
The Levy takes effect from 6 April 2017 and applies to employers with a paybill of £3 million or more. It is calculated as 0.5% of the paybill with a deduction for a levy allowance of £15,000 before any payment is due. The Levy will apply to all employers who meet the criteria, regardless of whether they have any apprentices.
Companies under common control are only entitled to one levy allowance and can choose how to allocate it. A paybill is defined as the amount in a tax year generating a Class 1 National Insurance liability for the employer, such as salary.
The Levy will be paid through the PAYE system. The Levy is being applied in order to fund further apprenticeships. All employers, including those who don’t pay the Levy, will be able to access apprentice funding online using digital vouchers.
If you require advice on the effects of the new rules or over your remuneration structure please contact our Tax Director, Jenny Marks.
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