From 1 April 2023 the National Minimum Wage (NMW) and the National Living Wage (NLW - for those aged 23 and over) will rise by the largest amounts since the NMW was introduced. This will come as a nasty shock to many businesses who also need to cope with steep increases in energy costs at the same time.
The current and new NMW & NLW hourly rates are:
*Under 18 and at least at school leaving age
**Apprentices are entitled to the apprentice rate if they are either:
- aged under 19
- aged 19 or over and in the first year of their apprenticeship
Many local businesses will have to pay higher salaries to young people
Many of our Visionary clients employ young people in the local area around St Albans, Harpenden and London. We are making them aware of the increases to the National Living Wage and National Minimum Wage that take effect from 1 April 2023.
The table above shows that for anyone over the age of 23, the National Living Wage will increase by 9.7% from its 2022 level. This seems like good news for young employees as their wage is going up but it is still struggling to match inflation. However, for anyone aged 21-22 years old who receives the National Minimum Wage, their rate of pay will increase by 10.9% from its 2022 level.
The National Minimum Wage increases by 9.7% for those aged up to 20 years old (and over school leaving age), which is slightly below the current levels of inflation. For those working under Apprenticeships they will receive a rise of 9.8%.
How will the wage increase affect your business costs?
Taking the 23 and over category, and assuming a young person worked a 35-hour week, a local business would have to pay £364.70 p/w to anyone who is 23-years or older after April 2023, compared to £332.50 p/w the previous year. If we assume these employees work for 52 weeks a year, they would earn £18,964 in the year after April 2023, compared to £17,290 in the current tax year. This is an increased cost to the business of £1,674 per employee. In addition, employers will incur an increased cost in Employers' NIC and workplace pension contributions.
How will local St Albans employers be affected by the increase in the National Living wage and the National Minimum Wage?
Many local businesses, for example in St Albans, Harpenden and London, will see their wage bill increase because they employ young people or adults on the National Living or Minimum wage. Young adults work in a variety of industries, but many businesses that typically employ younger people include hospitality, services, retail, leisure and wholesale.
If we consider St Albans as an example, there are many pubs, restaurants and hotels where young people are traditionally employed. Similarly, many young people work in St Albans' retail parks sports centres and shopping centres.
Employers need to be particularly careful about making deductions from wages that reduce the gross amount below the relevant NMW rate. This can occur very easily where employers are running salary sacrifice schemes; particularly for pensions. Other examples are employers deducting sums for employee uniforms, staff meals, childcare vouchers, or even for places at child nurseries where the employee also works.
The provision of subsidised nursery places is particularly tricky as this benefit may be the only reason the worker can afford to work at the nursery. If the employer provides such benefits this needs to be done outside of the payroll function.
Employers are permitted to charge workers rent where accommodation is provided. However, the amounts of rent which are permitted as a deduction from the NMW rate are strictly limited by the daily accommodation offset, which is currently £8.70 and will rise to £9.10 from 1 April 2023.
Where the NMW rules are broken HMRC can impose penalties of up to 200% of the amount of NMW underpaid, up to £20,000 per worker.
How should local businesses prepare for the increase to the National Living Wage and National Minimum Wage?
‘Firstly, it is essential that every business takes note of the changes due in April and reviews their workers' pay rates where applicable. You will also have to make changes to your payroll systems before April’s change to the National Living Wage and National Minimum Wage. Visionary Accountants work with businesses in Hertfordshire, London and the surrounding area managing the payroll for many small and medium sized businesses who do not have the time or the trained staff to do it in-house. We have many local clients in St Albans, Harpenden and London and we are working with them to prepare for these changes. It can be expensive to run your own payroll in-house so if you would like to consider a more cost-effective option call a member of our accountancy team on 01727 730550 for a free initial consultation.’
‘We would also recommend that any business that employs a considerable number of young adults reviews the cost to their business as our example shows that, even if you only employ 10 adults over the age of 23 years, it will cost you nearly £17,000 a year extra to employ them in your business after April 2023 (not including Employers NIC and Pension costs). This will affect your profitability, so you should prepare your finances accordingly. At Visionary Accountants our qualified accountants work with local businesses to help them with their strategic planning, so they budget for increased costs well ahead of time. If you are interested in changing accountant and want to get more information about how we can help your business achieve its growth targets, please call our sales team on 01727 730550 for a no obligation quotation.’