“Firms that can’t afford the increase should consider options such as increasing the price of goods or reducing staff numbers or hours” advises law firm Furley Page
The National Living Wage (NLW) will be introduced on 1 April but what impact is it likely to have on your business?
“The NLW will affect sectors differently and paying it is likely to cause wage bills to increase in those industries that employ a higher proportion of low-paid workers such as retail, care and hospitality businesses,” says Melissa Nelson, a solicitor with south east law firm Furley Page.
“While the intentions behind the NLW are undisputedly good, the introduction of it will clearly have more knock-on effects than perhaps originally anticipated.
“Businesses that genuinely cannot afford the increase in wages should consider options such as increasing the price of goods or services, decreasing staff numbers and/or reducing hours. Consultation is likely to be required for any changes involving staff and taking legal advice is vital,” adds Melissa.
The NLW comes in on 1 April for all working people aged 25 and over, and is set at £7.20 per hour. It will continue to rise incrementally to reach £9 an hour by 2020 at a rate to be determined by the Low Pay Commission. From 1 April to 30 September 2016 the statutory wage rates are:
- the apprenticeship rate is £3.30 per hour (applies to those aged 16-18 and those aged 19 and over in the first year of their apprenticeship)
- the 16- 17-year-old youth rate is £3.87 per hour
- the 18- 20-year-old youth rate is £5.30 per hour
- the former adult National Minimum Wage rate that now just applies to those aged 21-24 is £6.70 per hour
- the NLW for those aged 25 and over is £7.20.
The compulsory NLW is not to be confused with The Living Wage and the London Living Wage, which are both voluntary. There are two rates of living wage, one for London (£9.15) and one for the rest of the UK (£7.85).
The Government intends to offset the impact on businesses of providing higher wages through a corporation tax reduction and an increase in the employment allowance against employer National Insurance Contributions (NICs).
From April, the employment allowance which allows every company to save on employer NICs increases from £2,000 to £3,000. Further corporation tax reductions will cut the rate paid by businesses from 20% to 19% from April 2017, and from 19% to 18% from April 2020.
Melissa says the introduction of the National Living Wage has caused concern among business groups, with the Confederation of British Industry warning that legislating for a living wage does not reflect businesses’ ability to pay and meant taking a gamble that the labour market could absorb year-on-year increases of an average 6%.
“While the intentions behind the NLW are good, its introduction will have more knock-on effects than anticipated. Companies that can’t afford the increase should be considering options now such as increasing the price of goods or services, decreasing staff numbers and/or reducing hours. Consultation is likely to be required for any changes involving staff and taking legal advice at an early stage is recommended,” adds Melissa.
Companies looking for help with the introduction of the National Living Wage can contact Melissa Nelson at Furley Page on 01227 763939 or email firstname.lastname@example.org