Businesses Need to Prepare for the National Living Wage

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.

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