Christopher Eden
3 minutes length
Posted: 11th January 2016

The National Living Wage is coming this April, are you prepared? (Part 1 of 5)

This is the first blog in our set of five which looks into key issues we predict will affect businesses the most during 2016. These blogs are largely aimed towards the owners and managers of small and medium-sized businesses and highlight the key issues which could affect your business in a range of ways during the year.

From April 2016, the National Living Wage (NLW) will become mandatory for employees aged over 25 and will initially be set at £7.20 an hour, this is a rise of 50p from the current National Minimum Wage (NMW) which currently stands at £6.70. The amount is even higher in London, where as we know living costs are higher, and the government estimates that the NLW could rise to £9.00 by 2020.

The NMW will still apply for those aged between 21 and 24, and then when an employee reaches age 25, they will begin to receive the NLW. This presents a huge challenge for employers because if you employ workers on the NMW, they will see an additional £910.00 per annum more in their pay packages as they receive the NLW. The one solution to this may be to raise prices you may be thinking, but this may not be necessary, some companies have seen a rise in sales through paying the living wage and turning this into an example of them being an ‘ethical’ employer, which has meant that customers are more likely to choose them as opposed to a business which does not pay its staff the NLW.

The Living Wage Foundation says that employees tend to feel more loyal to a business which pays them well, and that NLW employers could see a drop in absenteeism of up to 25% because of this; as well as a rise in retention figures.

As April approaches and the change becomes mandatory, advertising that your business pays the NLW in the way that it is done today may become unnecessary, as consumers will just assume that you do as it passes into law. How you handle this could make or break your business, as a price rise may put customers off, whereas staff cutbacks could put your business in a vulnerable position during a busy period.

Planning ahead is key; after all, back in 1998 when the NMW was introduced, businesses across the country were stating there would be widespread job losses as businesses struggled to pay the additional costs. These days of course, the NMW is seen as standard and has helped millions of people and businesses alike – perhaps the NLW will do the same.

IRIS’ auto enrolment software has been designed with changes like this in mind, as well as the time constraints small and medium-sized businesses usually have. As with any salary changes such as the NLW and NMW, our software automatically works out the changes in pension contributions that each employ makes as their salary is adjusted for legislation. This saves you and your business time, and helps ensure that both you and your employees are making the correct contributions.

If you don’t already know, we host regular webinars regarding our auto enrolment software, you can find out more about January’s webinars and register here.

Our next blog regarding the key issues businesses will face in 2016 will be published on Monday 18th January and will look into the use of zero hour contracts.

To find out more about auto enrolment click here.

If you’d like to know more about the government’s planned implementation of the National Living Wage, click here.