On April 1^st 2016, there are going to be some changes to National Minimum Wage regulations that every employer must comply with.

If this is news to you, then you must have missed the billboards, social media campaigns and television ads all in the run up to the main event. Fear not though, because while you dust yourself off from crawling under that rock, we’ll explain exactly what it means to you – the small business employer.

What Do Employers Need to Do?

The National Living Wage will be raised to £7.20 an hour for employees aged 25 and over from April 1^st 2016. This doesn’t include workers who are in the first year of an apprenticeship scheme. As an employer, you’ll have to prepare for the change by completing a number of tasks.

These include:

• Figuring out which of your employees are eligible for the new rate of pay
• Updating the company’s payroll in time for the change over
• Explaining the changes to staff members

For those under the age of 25 (and in the first year of an apprenticeship) the National Minimum Wage rates will still apply. These rates are listed below.

• Standard Adult Rate (between 21 -24) – £6.70/hour
• Development Rate (between 18-20) – £5.30/hour
• Young Workers Rate (between 16-17) – £.3.87/hour
• Apprenticeship Rate – £3.30/hour

Consequences of Failing to Pay

If you didn’t know about the change or don’t think you’ll be ready in time, you best get a wriggle on. The fines for employers who don’t make the change by April 1^st will be a doubled payment – from 100 percent of arrears owed to 200 percent. But, if you act fast and pay within 14 days these penalties will be halved. The maximum penalty per worker will remain at £20,000.

Expectations

The rise of the National Living Wage comes with a more long term plan. It is one of the steps by the government which hopes that a higher wage, lower tax, lower welfare society will be implemented. By 2020 the plan is for the National Living Wage to have increased to £9 per hour – a rise which will require a six percent year on year increase.

How Will It Affect Your Business?

Admittedly, this rise in wages will hit the retail, hospitality and healthcare sectors hardest. It’s expected that in order to keep costs down, businesses are likely to recoup this money through better productivity among staff.

The increased wage has heralded mixed reviews from the small business community. A survey by the government among 1,000 business leaders found:

• 88 percent said it would make staff more productive
• 86 percent said it would boost staff morale
• 82 percent believed customers were likely to return if the business paid the right rates
• Around 45 percent had updated payroll to take account of staff aged 25 and up on 1 April 2016
• Under 40 percent had communicated the upcoming changes to staff

However, recently many small businesses have communicated doubts about the raised wage, claiming that costs are likely to be passed onto the customer, meaning the small business community will be the first to suffer compared to competitively-priced larger brands.

It also means small businesses will have less funds to invest in employee training and machinery, causing business directors to wonder how an increase in productivity will be possible.

Employment Market

The effect on the employment market is expected to be a big one, particularly within the small business sector. The attraction of hiring employees under the age of 25 to avoid the higher rate of pay is inevitable, and could see many small businesses’ reputation’s take a nose dive.

What are your views on the new National Living Wage? Is your small business for or against the wage? Leave a comment below!

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About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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