From Saturday 1st October 2016, the National Minimum Wage (NMW) increases for some age bands. The National Minimum Wage is the minimum rate of pay per hour most workers are entitled to by law. The rate will depend on a worker’s age and if they are an apprentice.
From last Saturday, wages go up to:
- £6.95 per hour – 21-24 year old (from £6.70: 2015)
- £5.55 per hour 18 – 20 years old (from £5.30: 2015)
- £4 per hour – 16-17 years old (from £3.87: 2015)
- £3.40 for apprentices under 19 or 19 or over who are in the first year of apprenticeship. (from £3.30: 2015)
Advice from Dan Docherty, Head of People Products at Sage, market leader for integrated accounting, payroll and payment systems: “Whilst great news for employees, the National Minimum Wage increase this Saturday is the latest in a long list of changes that businesses need to implement, adding to the administrative burden for business owners and leaders. At Sage, we want businesses to know they are supported and there is help out there to make implementation less painful, so they can get back to focusing on delivering their business goals.”
So how does a company prepare for a change like this and what should it consider? Here’s a quick ‘top three’ checklist:
- Avoid penalties from HM Revenue & Customs (HRMC) for not paying the National Minimum Wage: in a nutshell, businesses need to make sure that they understand which employees are eligible for which rates, what the correct rates are, that the company payroll is updated in time for 1 October 2016 and communicate any changes to their employees. This is a timely reminder to ensure that as an absolute minimum, businesses have all of the correct details on file for their employees, such a date of birth, to make sure they’re in the correct pay bracket. I would recommend that the best way to ensure all employees are getting what they are entitled to and protect the business is to conduct a full review of payroll and contracts of employment. This doesn’t need to be as onerous as it sounds – there are online payroll systems that will do this for you and alert you to any potential risks or non-compliance. This technology can also support with understanding exemptions and entitlements, which can change from sector to sector (Care, Retail, Construction etc.), and slightly different calculations for hourly-paid versus salaried employees. Remember, HMRC has the right to carry out NMW checks – businesses should make sure that their online systems keep this data for the three year minimum that HMRC requires.
- Pension Auto Enrolment: until now, your minimum wage workforce may have been under the threshold for auto enrolment. The National Minimum Wage update is likely to lift more employees into the auto enrolment bracket – therefore businesses will have to assess who in their workforce this will apply to, and communicate with their employees and pension providers as appropriate. There are great online resources such as Pension PlayPen www.pensionplaypen.com/, which can help companies find out more about what pension support and options are available.
- What other impacts and opportunities could this change have on your business? This change isn’t just about how much you are paying your employees per month, there will also be knock-on impacts on business cashflow to think about too, such as subsequent increases in tax and National Insurance (NI). It’s worth looking to technology to help take away some of those payroll headaches – for example, Sage 50 Payroll can carry out salary reviews, which forecasts the impact of any salary change across your entire workforce including pension tax and NI.
With change also comes opportunity – it’s often reported, that when people are paid more they are more motivated. What can you do to utilise this to help create an even better working environment while running a more successful business, especially relevant given the extra cost your business will now incur? Perhaps get your team of key managers together to review your business and people strategies to see if there are positive ways you can use this legislative change as a way to grow your business.
Dan Docherty is Head of People Products at Sage in the UK, the market leader for integrated accounting, payroll and payment systems. You can find out about payroll solutions at Sage here: www.sage.co.uk/software-and-services/payroll.