Are You Prepared for the National Living Wage?

Last July, the UK Government announced a National Living Wage (NLW) in the Budget. The wage – which is set to start at £7.20 an hour from April 2016 and will rise to £9 an hour by 2020 – sees over-25s moving from the existing over-21 minimum wage rate to the living wage.

After the announcement of a range of cuts to tax credits and benefits, the new living wage will help the Government to curb the country’s spend on welfare and benefits, as well as allow those workers on the lowest wage to have a “normal” standard of living. If employers pay more to their older staff members, the state in effect will pay less to those whose pay is “topped up” by working age benefits.

So how is it going to affect your business come April? In most cases, those members of your staff whom do qualify for the new National Living Wage will most likely already be earning over this threshold so you may see little to no impact on your business. However to help small businesses who may suffer an impact, the Chancellor will reduce corporation tax from 20% to 18% by 2020. As well as this the Employment Allowance – which allows small businesses to reduce the level of National Insurance contributions they pay – will rise by 50% to £3000 from 2016. The only downside to this if for those salon owners who are the sole employee of the business, as they will no longer be able to claim the Employment Allowance.

As the wage rates increase, the Government will be getting tougher on those businesses who fail to comply. For those businesses, large or small, who fail to pay people the correct wage will face a penalty of around £20,000 (or more) per underpaid employee. So it would be in your best interest to ensure your employees are paid correctly instead of paying a fine that could be costly to you and your business. If you have an accountant or payroll firm that deals with the wages for you, ensure that they know what is changing as you will still be accountable for any underpayment they make. Also make sure that all information on your staff is accurate and up to date, this includes their age, birthday and their salary.

It’s not just the National Living Wage that will be changing but from October 2015, there was also an increase in the minimum wage. Ensure that you are constantly keeping up to date with any wage increases and informing your staff of any changes.

For more information on the National Minimum Wage and how this may affect your business, visit here.