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The highly publicized National Living Wage (NLW) which was announced in last Summer’s budget has come into effect today, 1 April 2016.

The mandatory NLW requires employers to pay workers aged 25 and over a minimum of £7.20 per hour.

The policy was introduced by the Chancellor in an effort to create a higher-wage, lower-welfare economy, and it is estimated that it will provide 1.3 million workers with an immediate pay rise.

Employees aged 21 to 24 will continue to be entitled to the National Minimum Wage of £6.70 an hour.

The intention is for the NLW to rise to more than £9 an hour by 2020.

The independent Office for Budget Responsibility has warned that 60,000 jobs could be lost as a result of the above as businesses struggle to pay the new higher wages.

This will undoubtedly have a detrimental effect on small businesses, particularly following the new tax changes on dividends which will be effective from 6 April 2016.

The Living Wage Foundation, which inspired the idea of the NLW (although does not set the level of the NLW) welcomed the introduction today, and further urged businesses to "aim higher" and pay more than the statutory minimum, which some employers have advised they shall do so.

However, the Foundation did point out that it is still lower than it’s own suggested level of pay - £8.25 an hour and £9.40 in London.

Today’s increase in the minimum pay per hour for over 25’s, combined with the new auto-enrolment rules which are starting to come into force for small to medium sized businesses will undoubtedly have a detrimental impact on the labour market and employability factor. It is however important to consider the positive tax implications of employing workers, such as the abolition of employers national insurance contributions for apprentices aged under 25 from 6 April 2016, the apprenticeship schemes available (which reduce hourly rates and can provide access to grants), and of course the employers national insurance allowance which increases from £2,000 to £3,000 from 6 April 2016.

Should you require further information on the above please contact the Spirare team.