Cost-cutting employers could fall foul of new National Living Wage rules

Employers who look to find short-cuts and reduce labour costs to meet the new National Living Wage regulations face stiff financial penalties.

Michael Shroot, commercial partner at East Lancashire-based Woodcocks Haworth and Nuttall Solicitors, also fears employers could suffer damage to their reputation if they fall foul of the strict new rules, which came into force on April 1.

Michael, who also heads up the employment law team at WHN, commented: “The National Living Wage is akin to an additional rate of the National Minimum Wage that now applies to workers aged 25 years or older.

“Many employers are concerned about the impact this will have on the performance of their businesses. Some may be tempted to alter employees’ pay, staffing numbers, and even dismiss people to ensure that their business remains profitable.”

He continued: “As with any changes to employee contracts, great care has to be taken. Firstly, what an employer cannot do is ignore the National Living Wage.”

The National Living Wage additional rate has been introduced through the National Minimum Wage Regulations 2015. Michael Shroot believes it could have the same enforcement implications for employers as the National Minimum Wage.

This can result in employees having the potential to make claims to the Employment Tribunal for underpayment, as well as various government agencies prosecuting an employer. The upshot can be stiff fines and damaging publicity.

Michael added: “When looking to manage increased costs, employers must carefully assess the implications of cutting overtime rates and certain shift allowances, as this could be regarded as an alteration to the contract of employment. If so, any changes may well require employees’ agreement. Failure to obtain this could result in claims for constructive unfair dismissal, unlawful deductions from wages and other types of legal action.”

Other potential concerns for employers arise from dismissing employees for reasons relating to a National Living Wage request, or the loss of a bonus because the employer pays the National Living Wage instead.

Michael advised: “In this type of situation, an employee may be automatically unfairly dismissed if the main reason for dismissal, or the alteration to a contract of employment, relates to qualifying for National Minimum Wage, or a particular rate of it.” “Even employees with less than two years continuous service who would not normally enjoy unfair dismissal rights may well have legal protection under the new system.”