You Have Less Than A Year To Prepare For Mandatory Living Wage

Posted on 11th August 2015

The UK government has announced that from April 2016, a mandatory living wage for employees over the age of 25 will be introduced. It currently stands at £6.50 and will be increased to £7.20, with a target of it reaching more than £9 an hour by 2020.

It will give a pay rise to six million workers but is expected to cost 60,000 jobs and reduce hours worked by four million a week, according to the Office for Budget Responsibility.

Conservative First Secretary of State George Osborne said, ‘Britain deserves a pay rise and Britain is getting a pay rise’.

Of course though, the issue is one that’s very likely to be causing concern amongst employers. It’s understandable that leaders will be concerned about the impact that the new legislation could have on their bottom line. For us this is particularly the case for our clients who have most of their employees on the minimum wage and so it will have a huge impact as will be an increase for most of their payroll.

We have also heard fears surfacing from employees and business owners around the possibility of having to lose members of staff if the budget simply is not there to pay this new amount, especially once it reaches the dizzy heights of £9 an hour.

These are tough economic times, so it’s sensible to start your planning processes as soon as possible.

Let’s take a look at the steps you should take to ensure that your business is prepared when April rolls round.

Look at the bigger pictureMandatory living wage-1

There are several factors at play here, so it’s vital that you consider the impact in the wider sense. The Office for Budget Responsibility has estimated that the change to minimum wage will cost approximately 1% of profits. The loss though could be partially offset by the fact that corporation tax will be cut to 19% in 2017, and then 18% in 2020.

In addition to this, businesses are expected to incur savings from a reduction in national savings contributions.

The bottom line? Speak with your accountant, and seek out tailored financial advice.

Start thinking about how your systems will manage the changes

The new provisions will probably require your administrative processes to be updated. If you outsource your payroll to a third party provider, get in touch right away so you can ensure that you’re suitably prepared.

Also think about your policy documentation and any updates that will be necessary. Consider your recruitment documents, onboarding and induction processes, communications around pay bands and structures, and so on. Now could be a great time for an overall refresher to make sure you’re ready.

Consider how you can boost productivity

You may end up paying out more each month to cover wages. This doesn’t necessarily mean though that you’ll end up making a loss. Now’s the time to start thinking about how you can boost productivity. Do this effectively, and it’s a win-win situation. You increase your profitability, your staff are rewarded with a bigger pay packet, and your business is compliant with the new law.

Increasing productivity is obviously much easier said than done though. It requires effective leadership, plenty of support and possibly further training for your employees, and often, a shift in deeply embedded company culture. Recognise the work that this kind of objective will involve, but don’t shy away from the challenge. By the time April comes, you’ll be pleased that you sought to raise your bar.

Remember that you don’t have to manage all of this on your own. Would you like the opportunity to chat with an experienced HR consultant about the upcoming changes, and how you can ensure compliance? Pick up the phone today. We’d be delighted to talk you through how we can help. Call us on 01536 215240 or email info@gatewayhr.com to book a call.

Emma Wynne Character
Written by:
Emma Wynne
Managing Director
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