National Living Wage could put extra strain on small businesses


The new National Living Wage (NLW) will come into effect starting on April 1 2016. With just four months left before the changes, the Government is warning businesses to prepare for the introduction. Tasks to take care of include ascertaining which staff, if any, will be affected by the changes, communicating the changes to staff and updating the payroll.


A government survey found that less than half (45%) of businesses had already updated their payroll information. Even fewer (40%) had communicated the forthcoming changes to employees.


The NLW will initially be set at a rate of £7.20 and is the minimum that must be paid to staff aged 25 or over. This is 50p higher than the current National Minimum Wage (NMW) of £6.70. For a full-time employee currently paid the NMW, this represents an annual wage increase of £910. Workers aged 21 to 24 will continue to receive the NMW.


The government survey found that the majority of corporate leaders were in favour of the change. The poll of a thousand ‘business leaders’ said 93% were in favour of the introduction of the NLW, which is expected to affect more than two and a half million workers across the UK.


Some 88% of respondents said it would make staff more productive while 86% believed it would boost staff morale. A further 82% said they thought customers would be more likely to return if they paid the right rates.


The change will undoubtedly be an extra burden for businesses currently paying the NMW, however any businesses already struggling financially could even find themselves in a position where they are in need of business rescue. Many SMEs and business organisations have voiced concerns over the changes, and of the need to amend their cash flows in order to manage additional wage outlays.


Employers who fail to pay the NLW to eligible staff could face stiffer penalties than those who did not pay the NMW in the past. The penalty will be doubled, from 100% to 200% of the arrears owed, although this will drop back to 100% if paid within 14 days. The maximum penalty will remain at £20,000 per worker.


By Phil Smith


If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1144.

View all Business Insights