Last Updated on 7.7.16 by Christian Mancier
It doesn’t seem that long ago since the Government announced their plans to introduce to up the National Minimum Wage so it becomes a ‘National Living Wage’ (NLW). In fact, it was July 2015 when the Chancellor first declared this then later cleared up the rates.
It is worth bearing in mind that there is a difference between George Osborne’s National Living Wage which will be a compulsory rate from April 2016 and the “Living Wage” a concept that has been around since 2001 and is a level of wage which supports a minimum acceptable standard of living and is promoted by the Joseph Rowntree Foundation and the Centre for Policy and research at Loughborough University which is entirely voluntary and, unlike the National Living Wages, distinguishes between those in London and those outside of London.
The new legislation in respect of the NLW comes into effect on 1st April 2016. The compulsory National Living Wage for over 25s will be £7.20 an hour compared to the Joseph Rowntree promoted voluntary Living Wage for the over 25s which will rise to £8.25 outside of London and £9.15 in London. The target by 2020 is for the NLW to reach £9 an hour.
The rates have been introduced to try and help meet the demands of an ever increasing cost of living. What is does mean is change for business owners and their companies. The best thing you can do is prepare. Here are our top 8 tips to make sure you are prepared for the changes:
1. Review Payroll
Reviewing your employee hourly rates is one of the first steps you need to take to make sure you meet the National Living Wage rates. As the new provisions are age-based with different rates applying to different age categories, the age of your workers is a key factor. Currently, there are apprentice rates for those aged between 16 to 18, those aged 19 or over who are in their first year, under 18 rates, 18 to 20 and then an over 21 adult rate.
It would be a good idea to have an in built system alert to notify you when a worker has a birthday and if they are eligible to move up to the next bracket. Making sure your systems are up to date and able to accommodate birthdays will make your payroll easier to manage.
Perhaps the hardest issue here will be keeping sufficient distinction between pay grades across the work force where those to whom the National Living Wage won’t apply may also need pay rises to keep a sufficient distinction between those less senior employees whose pay is about to increase as a result of the introduction of the National Living Wage.
It is also worth bearing in mind that any attempt to mitigate the costs associated with the introduction of the National Minimum Wage by distinguishing between those aged over 25 and over aged 25 and under could see you falling foul of age discrimination legislation.
2. Reassess Outgoings and Prices
Unsurprisingly, an increase in cost in one part of your business, e.g. the wage bill, will either eat into your profit margin or have to be offset against another area of the business. There are many ways to offset costs and each will be dependent on the business sector you operate in. One way is to increase your prices and pass a percentage of this increase on to someone else. Another way is to look at your costs and reduce your outgoings, which may be to do with staff, hours, productivity or providers and services that you use.
3. Take Advantage of other Government Legislation
The Annual Investment Allowance (AIA) was due to be reduced to £25,000 this year, but it has instead been capped at £200,000 for the next five years. The AIA allows small to medium businesses to make 100% tax-deductible investments when you buy business assets, such as equipment, machinery, tools and vehicles. This will give your business security when planning capital investment and increase cash flow as it can be claimed in the year of investment. All of which helps to enhance business confidence.
Further good news for businesses is the reduction in corporation tax from 20% to 18% by 2020, meaning Britain will have the lowest corporation tax of any G20 nation, allowing British businesses to be more competitive on the world stage.
4. An Investment in your Assets
Your workers are one of your biggest assets. A wage increase is likely to enhance workforce happiness, productivity and decrease employee turnover. These outcomes have been seen in many cases where an employer has increased wages of their own choosing, such as Costco and Aldi, as well as being verified in an independent study of the Living Wage policy in London where 80% of employers found a boost in the quality of the work of their staff and a fall in absences by 25%.
5. Plan Ahead and Keep Up-To-Date
The rise in national minimum wage doesn’t have to be a big disruption for your business. The £9 rate for over 25s doesn’t come in until 2020, with increments to take place in stages from April 2016. Your business, therefore, has plenty of time to plan ahead. From April 2016 the rate will be £7.20 (it is currently £6.50 for over 21s), with the national minimum wage still applicable to those under 21. It hasn’t been broken down how the NLW will reach £9 by 2020, but we know it is going to happen, so planning ahead is vital.
Keeping tabs on the news, joining a Linkedin group, or even joining a relevant business groups, such as the Chamber of Commerce and the Forum of Private Business, will give you advance warning of any changes that are planned to take place. Such forums can also give you regular employment law updates and keep you in the loop so nothing comes as a shock.
6. National Insurance Employment Allowance
In the summer budget the National Insurance Employment Allowance was increased by 50%, to £3,000. This is a way for small businesses to reduce their wage bill and possibly offset the cost of the NLW. The chancellor explained that the changes will allow a company to employ four members of staff, full time on the new NLW rates without paying any national insurance.
7. Networking and Shared Support
Pooling resources and sharing support may be one way to support your business, and those in your network, at this time of change. You may consider sharing resources to pay for a payroll or HR advisor to support you. There are also flexible and social business offices available to help you save on costs. Here you can grow your network, work alongside, collaborate and do business with other like-minded business people.
8.Go Social and Create a Buzz
Communicating your changes is a good way to create a positive feeling around the workplace, whilst letting the outside world know about the changes you are implementing. Being proactive within your business and keeping your staff updated of the changes will help to show dedication and clarity, making your staff feel valued and benefitting your relations. You can even implement your changes early if you are in the position to and apply for accreditation as a Living Wage Employer, which will enhance your company’s reputation.
To have a chat with me or anyone else from our Corporate-Commercial team about implementing the changes, call us on 0161 930 5151.