April 2016 will see the introduction of the compulsory national living
wage.
The new minimum wage of £7.20 per hour is set to become law for all
working people aged 25 plus. The National Living Wage (NLW) will have to be
paid as a minimum by all employers, and the Government aims for it to rise to
£9 per hour by 2020.
The Office for Budget Responsibility (OBR) has said that the estimated
cost to businesses will represent 1 per cent of profits. But the costs will be
offset with a cut in corporation tax in 2017 to 19 per cent, and further down
to 18 per cent in 2020. National insurance contributions for smaller companies
will also be cut in an attempt to balance the wage rise.
“From 2016, our new Employment Allowance, will now be increased by 50%
to £3,000,” announced the Chancellor George Osborne. “That means a firm will be
able to employ four people full time on the new national living wage and pay no
national insurance at all.”
The national minimum wage rose to £6.70 in October 2015, and the over
25s will see a 50p per hour pay rise from April 2016. That is a hike of 11 per
cent for employers.
The Living Wage
Foundation set a rate of £7.85 as the figure they deem appropriate, and the
rate of £7.20 would seem a step closer. However, Rhys Moore, director of the
Living Wage Foundation, said it was “delighted” that more than 2.5
million workers will receive a much needed pay rise, but then asked, “Is this
really a living wage?
What Business Organisations Think
John Cridland, director-general
of the Confederation of British Industry, said: “This is a double-edged
budget for business. Firms will welcome measures to balance the books and boost
investment, but they will be concerned by legislating for wage increases they
may not be able to deliver.”
Chief economist for the Chartered
Institute of Personnel and Development Mark Beatson said, “This policy will
only deliver higher pay without significant job losses if it is accompanied by
a drive to increase productivity in low pay sectors such as retail,
hairdressing, hospitality and the care sector – and that will need more than
delivery of apprenticeship numbers or employment subsidies via the national insurance
contributions system.”
If you are concerned as to how
the new National Living Wage will affect your cashflow and profit, don’t delay
in discussing it with your bookkeepers who will be able to put you in the
picture with forecasts and practical advice.
