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Budget update – Rise to the National Living Wage

British new £1 pound coin.

Chancellor Philip Hammond announced yesterday as part of the Budget that the National Living Wage would rise in April 2018 from £7.50 to £7.83 for workers who are aged 25 and over.

The National Living Wage is the amount of money all employees aged 25 and over are legally entitled to.

Those who are paid the lowest wage will see a 33p per hour increase to their hourly wage which is a 4.4% rise.

In the Spring Budget 2017, Hammond increased the National Living Wage from £7.20 to £7.50 an hour which was a similar 30p jump.

Hammond revealed that his intention is to increase the National Living Wage to £9.00 by 2020. By 2022, Hammond predicts that an extra 600,000 people will have jobs.

Implications for Employers

Although the plan provides a significant boost to low-paid wages, employers who are paying workers the National Living Wage could be paying out an extra £600 per year per person to full time workers.

I have created a hypothetical example which shows the pressure businesses may be put under:

If X Company has 100 staff on the National Living Wage,

And all 100 staff are employed on a 40 hour weekly contract,

The annual extra costs to the Company would be a staggering £68,640 paid out per year. The Company would also need to pay extra NI and pension costs on top of this amount.

Areas such as hospitality and agriculture will be hit the most with this increased figure and some small businesses may be put under significant financial pressure to comply with the increases.

Failure to pay

Employers must be reminded that it is against the law for them to pay workers less than the National Living Wage and National Minimum Wage. Employers will need to be aware that the penalty for non-payment will be 200% of the amount owed, unless the arrears are paid within 14 days.

The maximum fine for non-payment will be £20,000 per worker. Employers may be personally liable as those who fail to can will be banned from being a company director for up to 15 years. HMRC can also name and shame employers who have been penalised.

These daunting penalties should be enough to put any employers off failing to adhere to the increase to the National Living Wage. I would encourage all employers to check their workers’ pay and if they are on the National Living Wage, plan and get ready for the increase in April 2018.

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