The new National Living Wage ("NLW"), due to come into force this April, will impose a premium of 50p on the hourly wage of those aged 25 or over. This means that the National Minimum Wage ("NMW") for those workers will be £7.20 per hour (roughly £13,000 full time earnings - varying depending on the number of actual hours worked). The current NMW rate for those aged over 21 is £6.70 (so around £12,000 full time); £5.30 for under 21s (circa £9,600 annually); and £3.87 for under 18s (so about £7,000). If you're an apprentice, however, you can expect a minimum hourly rate of only £3.30 (full time equivalent: £6,000).
Clearly, NLW is going to result in an increase in wages for employers hiring people on minimum wages. Young people (aged 16-24) make up only 12% of the total UK workforce, so NLW should result in an increase in wages for the majority of UK workers. Equally clearly, therefore, is the fact that there could be a cost saving to be made if employers start hiring younger employees.
But this is a strategy not without a very significant degree of risk. Age is one of the protected characteristics under the Equality Act 2010 and so, any decision to hire someone, or refuse them an offer of employment, based solely on their age is likely to constitute direct discrimination.
Direct age discrimination (unlike other forms of direct discrimination), unfavourable treatment based on age can be allowed provided that it is "objectively and reasonably justified by a legitimate aim" (Article 6(1) of the Equal Treatment Framework Directive). Nevertheless, this does not give employers carte blanche to discriminate on the basis of age when hiring. The European Court of Justice has been specific on this point - age discrimination can be justified where it is in pursuit of a legitimate social policy aim, not the interests of private employers. In the Heyday case, the ECJ held that social policy aims were those in the public interest, not "purely individual reasons particular to the employer's situation, such as cost reduction" (although the Court did go on to say that "a certain degree of flexibility for employers" might be recognised). The UK's Supreme Court applied this in a 2012 case, ruling that direct age discrimination could be justified if the employer could show a social policy aim, not just a "the individual business needs of particular employers". So whilst the Government is unlikely to come into the firing line for setting rates at different age levels - given that such rates are justified on the basis of boosting youth employment - an employer who seeks to use the rates to reduce its overheads is in much trickier territory.
Employers would be wise to remember also that compensation in discrimination claims is unlimited. Whilst it might be tempting to take the risk, the wage gap between 21 and 25 year-old workers after the introduction of NLW is actually only approximately £1,000 per year (based on a 35 hour week, 52 weeks per year). That may not be saving enough to run the risk of a hefty discrimination claim.
The National Living Wage (NLW), coming into force on 1 April 2016, could encourage some employers to consider hiring those ineligible for the pay rise in order to minimise the impact it will have on their wage bill.