Counting The Cost of The New National Living Wage

In just under three months, if you aren’t already, you will have to pay employees aged 25 and above the new National Living Wage of £7.20 per hour. Have you given thought as to how you will manage your higher wage costs?

As an employer it is more important than ever that you know which rate applies to each worker in your company, as not only must you pay them at least the rate to which they are entitled but the financial penalty for you as an employer, should you fail to do so, is increasing from 100% to 200% of any underpayment due. It’s a good idea to familiarise yourself with the four levels of National Minimum Wage there currently are (which are usually updated in October each year), and plan ahead for the introduction of the National Living Wage, which adds another mandatory level from 01 April 2016. 

Increasingly we are hearing of cases whereby employers are unsure of how to apply rate changes either when rates and/or legislation changes, or an employee’s entitlement advances a level due to their age. It’s important on these occasions to understand the pay reference period you pay your workers for, for example monthly, and any earnings they will have due from this period. As an employer you may be surprised to learn that you may still comply with the legislation even if not all earnings, for example commission, are paid during the pay reference period. 

Think practically

Knowing the correct rate to pay your workers is of course just one element of planning ahead for the changes. Whilst some employers will absorb the higher wage bill others, from the feedback we’ve had so far, are concerned about how to manage the additional cost and any potential implications. We recommend that employers start to think practically now:

  • Review your wage bill now and the cost of the increase. Take into account other additional costs you are about to incur as an employer, such as those associated with your pension auto-enrolment obligations. Having this information will allow you to assess the impact;
  • Consider ways to increase productivity. Changes such as increased costs can provide the motivation to explore ways to improve efficiency;
  • Provide training for your manager/s on how to recruit and conduct salary reviews. It is important that they are equipped with the skills to avoid potential age discrimination risks in their everyday management;
  • Review your budget for opportunities to cut costs. As with increasing productivity, it may be that having to increase the salaries you pay provides a different perspective on other costs, such as reducing overtime, bonuses and recruitment, negotiating with suppliers, or increasing what you charge;
  • Make tough decisions sooner rather than later. Where the increased costs cannot be sustained longer term (there are further planned increases in the National Living Wage to £9 by 2020) consider restructure and potential reduction in headcount. Improving productivity and/or increasing the prices you charge may not be feasible options for your business and taking action now will enable you to avoid further financial difficulties later on.

We at Willis Consulting and Employment Services can work in partnership with you to help you understand your obligations, consider the consequences for your business, develop ways to manage the impact and deliver management training. We can also help you undertake salary reviews and benchmarking exercises, and work with you to devise strategies to minimise the impact for your business now and over the next few years.

With the National Living Wage coming into effect on 01 April 2016 now is the time to seek advice to help you plan ahead. Call us today on 02890 329042 or email and a member of the Willis Consulting team will be happy to help.

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