Gearing up for the NLW changes
On 1st April the government will introduce the National Living Wage (NLW). Initially set at £7.20 per hour it will apply to all employees over 25 years of age. This is 50p an hour above the current National Minimum Wage (NMW) of £6.50 per hour. Are you ready for the NLW?
NLW, some things to consider.
Your first step to comply with the legislation is to identify all your employees 25 years old and over who are currently paid less than £7.20 per hour. However, it is important to assess the impact on the rest of your workforce.
Alan is currently working with a client to help them introduce the NLW. The company employs around 100 people in a variety of trades.
Identifying the over 25’s was straight forward, but further data analysis revealed there were a small number of Supervisors who, whilst paid in excess of the NLW, would have a very small pay gap between themselves and their team members on the NLW.
As a result, the client felt that a pay adjustment for the Supervisors was required to recognise the additional responsibilities of the supervisory role.
It is worthwhile looking at all your pay rates to ensure that you are correctly paying your under 25’s and Apprentices. It’s also easy to miss a birthday increase for the under 21’s!
If you have employees on annual salaries their MLW will be £13,852.80 (based on 37 hours per week). You will need to run checks on all your annual salaried employees too.
Larger structured companies with grading structures with pay bands will need to undertake a structure review to ensure their band minimums reflect the NLW.
Some employers offer enhanced pay rates for skilled workers. Whilst the enhanced rates may be above the NLW, there may be requests from employees to recognise the NLW impact on the differential between skilled and unskilled pay rates.
The introduction of the NLW will increase employer payroll costs. The Government has made some changes to Corporation Tax and the new Employment Allowance to reduce the impact of the increase. However, employers need to be aware that the intention is that the NLW will rise to £9 per hour in 2020.
For my clients this will mean an increase in their salary budget in excess of 10%. This does not take into account any future increases in the NMW.
What to do next
- If you haven’t already done so, undertake a review of your employee salaries to identify all affected by the introduction of the NLW.
- Next, consider the impact on other employees whose pay is close to £7.20 per hour, especially your Supervisors.
- Take a look at what the impact on your business would be of a £9 per hour NLW. What action do you need to take to improve productivity or increase turnover?
Do you need some help to assess the impact of the NLW on your organisation?
Please contact Alan to find out how he can help you undertake a salary review.