The UK's Finance Minister has pledged an increase in the National Living Wage (NLW) in the coming year.
According to forecasts from the Low Pay Commission (LPC), the new NLW is expected to go up to around £11.
There has also been talk about lowering the eligible age for the NLW to 21 years old, making it a legal requirement for younger employees in your company to earn over £11 per hour.
In my experience, these changes mean many businesses will see an impact in the following aspects:
- Labour costs
- Cash flow and liquidity
- Payroll responsibilities
- Accounting and financial management
- National Insurance Contributions (NICs)
- Tax, regulatory and legal obligations
In this article, I have outlined the impact that a raise in wages means for your business and how to successfully manage them.
National Living Wage vs Minimum Wage
I often find that clients can get confused over these terms, and understandably so!
The National Minimum Wage (NMW) is the legal hourly pay rate for most workers under 23, and it varies based on age and apprenticeship status.
The National Living Wage (NLW) is the minimum hourly rate for employees over 23 who are not in their first year of apprenticeship.
As of 2023, this rate is at least £10.42 per hour.
How will your finances be affected?
An NLW increase inevitably leads to an increase in operational costs. If you currently have staff on minimum wage or those over 21 earning less than the NLW, your labour expenses are set to climb.
This wage hike will also likely impact your cash flow, increasing your financial outgoings, especially in the first months before you have had a chance to make corrections like reducing your operational costs.
In the short term, you may experience reduced liquidity, limiting the funds available for reinvestment in your business.
I have seen first-hand how having a qualified accountant by your side can help you manage these additional financial burdens and maintain a profitable business.
How will your payroll obligations change?
The most immediate and noticeable effect on your payroll will be the necessary adjustments that need to be made by your finance department before and after the policy’s implementation.
As someone with years of experience in the accounting profession, I can tell you that this is no easy task.
Failure to accurately update wage slips on time could lead to legal repercussions, including fines and penalties.
The wage increase might also move some of your employees into a higher tax bracket or alter their NICs, necessitating complex payroll recalculations that take time and effort to complete.
Both internal and external reporting systems may also need updates to reflect these wage alterations, including submissions to HM Revenue & Customs (HMRC).
Non-compliance, even if unintentional, could expose your business to serious legal and financial risks.
How Scholes can help
Equipped with the latest information and software, Scholes is ideally suited to navigate the newest NLW changes.
We can facilitate a smooth transition, promptly aligning your payroll with the most recent regulatory standards and ensuring your business stays compliant with new Government regulations.
Our team can help you manage the extra financial burden of increased wages, mitigating significant impacts on your business and helping you weather the current economic conditions.
Contact our team to learn more about the National Living Wage increases and how they affect your business.