National Minimum Wage Increase
Posted on 30th January 2020 at 08:22
In April 2020 there are going to be increases in both the National Living Wage and National Minimum Wage..
The National Living Wage (NLW) is the minimum amount which employers must pay to staff who are aged 25 and over. From 1st April 2020 the statutory amount will go up from the current rate of £8.21 an hour, to £8.72 per hour. Every April this rate changes, however, this year it is higher than normal.
The National Minimum Wage (NMW) rate is dependent on the age of your employee, though they must be at least school leaving age. However, if they are an apprentice the rate is different again.
Like the NLW, the changes come into effect on 1st April 2020, though the size of the increase varies. This is as follows:
For employees aged 21 to 24 the National Minimum Wage will increase from £7.70 to £8.20 per hour.
Employees aged 18 to 20 will see National Minimum Wage increase from £6.15 to £6.45 per hour.
For employees aged under 18 the National Minimum Wage will increase from £4.35 to £4.55 per hour.
And finally, for apprentices the National Minimum Wage will increase from £3.90 to £4.15 per hour.
Nearly three million workers set to benefit from the increases
The Government has said that nearly three million workers are set to benefit from the increases and it was “on track” to meet its current target for the NLW to reach 60% of median earnings by 2020.
However, there are fewer businesses than you might expect that will be affected by these changes. The FSB carried out research in 2013 and found that one in two small companies were already paying all their staff wages at or above the living wage set by the Living Wage Foundation.
The Federation of Small Businesses and the British Chamber of Commerce have both said that to ease the financial pressures on companies, a reduction in tax bills would be necessary.
A few small business groups are feeling slightly nervous about the increase. The National Chairman of the Federation of Small Businesses, Mike Cherry, says that many SMEs will require support. “While it is welcome that the Chancellor is giving businesses five years to adapt, this increase will leave many small employers struggling and, without help, could make some small firms unviable,” he warns.
However, the benefits of paying staff more are clear. London Economics recently carried out a study and found that four out of five companies who introduced the Living Wage Foundation’s minimum pay levels believed doing so had seen the quality of their work rise, while also reducing absenteeism. This in turn represents a substantial boost to productivity within the businesses.
Meanwhile, at Barclays Bank, staff turnover was dramatically reduced when a commitment was made to pay the living wage to cleaning and catering staff. The change is credited with delivering staff retention rates of 92 per cent and 77 per cent respectively in each area, compared to industry averages of 54 per cent and 35 per cent. Recruitment costs are also significantly lower.
The other benefits for businesses are that that are likely to be more attractive to higher quality candidates by paying more, for example. Also, if they sign up for the Living Wage Foundation’s pay levels, they would then be entitled to accreditation, which could provide a boost for both their reputation and brand.
So, whilst some smaller businesses will see an increase in their wage bills once the new living wage comes into effect in April 2020, the costs will need to be balanced against the potential benefits to the company. Planning for higher wage costs to come is important, but for the bottom line there will be advantages too.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
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