New regulations for employers came into force from 1st April 2016, which mean that a specific rate of pay will have to paid to all workers aged 25 or over. This is the new National Living Wage, which will enhance the National Minimum Wage regulations. All employers will be expected to comply with the regulations, regardless of the number of employees that the company has.
What is the National Living Wage?
The National Living Wage is calculated as the amount required by a person to cover the cost of living. The amount was previously used as a benchmark, but will now be legally enforceable under the National Minimum Wage (Amendment) Regulations 2016. The government has introduced the National Living Wage to help society move from one of a low pay, a high welfare bill and high taxes, to a society that offers lower taxes, a lower welfare bill and higher wages.
What are the changes?
As of 1st April 2016, employers have had to pay the revised rates for National Living Wage to those aged 25 or over. The rates are slightly higher than the National Minimum Wage. For workers who are aged below 25, the National Minimum Wage rates are applicable.
All employers will be expected to check their workforce and ensure that the correct pay rates are being applied, and all staff should be notified of their new rate of pay. Changes may be required to the payroll system, but this is often taken care of by an outsourced accounting function.
How can a small business recoup the extra costs?
A financial plan is crucial for all small businesses to consider the actual cost of implementing the new regulations. Initially, calculate the number of staff who will qualify for the higher rate of pay so that you can calculate the costs per annum. A company will have to think of ways to absorb the extra costs, which may be achieved by increasing the selling price of products, or by streamlining a process to reduce the production costs.
There will be other changes to employment law that may also have an impact on the wages bill. However, the government has lowered the rates of National Insurance, which will save some money for business owners.
If you would like to discuss the potential methods of recouping costs, please contact us to arrange an informal chat.