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October 2021

National Wage Increases – What is the Financial Impact for SMEs?

National Wage Increases – What is the Financial Impact for SMEs? 501 360 Growth Partners

On Wednesday 27 October, increases to national living wage and national minimum wage were announced as part of the Budget 2021. The increases affect all businesses in the UK employing lower-paid workers and apprentices. 

 

The announcement comes at a time when inflation is set to rise to 4%, the number of job vacancies hits a record high and the UK unemployment rate sits at 4.5%. 

 

So, what is the impact for SME owners employing workers and what can you do to reduce the financial impact on your business?

 

 

Increase in National Living Wage

The national living wage is the term given to the minimum wage an employer must pay a worker if they’re aged over 23-years-old. Before the budget, national living wage sat at £8.91. The Budget announcement on 27 October set out plans for increasing national living wage from £8.91 to £9.42 on 1 April 2022.

 

Increase in National Minimum Wage

As part of the Budget, it was also announced that national minimum wage for workers aged 21-22 years old and apprentices will increase. From 1 April 2022, if you employ an apprentice who is aged 16 and over and not in full-time education, you must pay them a minimum of £4.81 an hour – an increase of 51p an hour. If you employ any workers aged 21-22 years old, from April onwards you must pay them a minimum of £9.18 an hour – an increase of 82p per hour. 

 

How will the national wages increase impact SMEs?

A mandatory increase in wages and national insurance contributions will always impact the bottom line for SMEs. Coupled with rising inflation, skills shortages, and challenges in the supply chain at a time when businesses are recovering from a pandemic, these increases in overheads can be hard-hitting. 

 

Changes to national minimum wage and national living wage will not only impact those paid at this rate but may also require pay adjustments to others such as supervisors and managers to ensure pay differentials are not eroded.   

 

This is the perfect time to look at your costs as a business and understand where you can save or where you may not be getting the best value for money. 

 

The cost of payroll is an area of your business where you need to invest carefully – ensure you are working with payroll experts that are fully compliant with HMRC and The Pensions Regulator. Taking shortcuts with payroll and pension processing could lead to heavy fines and more financial pressures on your business. 

 

If the person or company processing your payroll and pensions is found not to be compliant with ever-changing government regulations, you the business owner will be held responsible. 

 

Now is a good time to check your payroll software automatically detects whether someone is due to fall below the minimum wage. This will help you now, but also in years to come as younger workers transition through the various age thresholds. 

Action point:
Look at your payroll and pensions processing costs. How much are you paying each month and what assurances do you have when it comes to compliance? By switching payroll providers, you may be able to save enough to offset the rising salary costs. Take a look at our 6 Things to Consider When Outsourcing your Payroll checklist to help.

 

How do you retain employees to help avoid recruitment costs?

With employment vacancies at a record high, while inflation is rising, it can be a difficult time for employers to retain staff. And once you pay to source good staff and invest time in their training you want to keep them. Not only to keep recruitment costs low but to grow your business too. 

 

Don’t be too concerned if you can’t compete on salary. In a recent survey, CIPD reported 50% of candidates voted organisational values as the most important factor when considering a company to work for. 44% of respondents agreed pay and benefits are the second most important factor, followed by career development opportunities and flexible working. Did you also know, that 88% of millennials will pick culture over a salary when choosing an employer to work for? 

 

With this in mind, it’s important to consider the other ways you attract and retain staff – think what other benefits you offer to employees which they value highly and keep them engaged. 

Action point: 

Reassess your employee engagement strategy, if you have one. Our five-point plan will help you consider what will drive an uplift in engagement and help keep staff for the long term. 

 

What options do businesses have when costs increase?

If the national wage increase is set to hit your business hard, it might be time to look at your approach to staffing. Can you do more with less? Can you find smarter ways of working? Should you look at cross-training as a way of upskilling current staff instead of employing more? 

 

Did you know there are a range of employment grants available to SMEs which may be worth considering if increasing staffing costs will prove to be an issue?

 

If you employ low-paid workers, you may find the government’s Kick Start Scheme is relevant for your business. The fully-funded scheme is designed to provide meaningful employment opportunities to unemployed 16-24 year-olds and as their employer, 100% of the national minimum wage or living wage is paid for you, as well as associated national insurance contributions and auto-enrolment pension contributions. What’s more, you could even get a grant of up to £1,500 to help with setup and training costs. In return, you offer work placements that are a minimum of 25 hours per week for a six-month period. The scheme closes to new applications on 17 December 2021. However, if your application is accepted you have until 31 March 2022 for the young person to commence their role.

 

Another option to consider is Government-funded apprenticeship schemes, which contrary to popular belief are available to anyone over the age of 16, not just school leavers. Again, funding is available to pay for apprentices and their training – how much is dependent on the size of your company and your annual pay bill. A £2.7bn investment to improve the apprenticeship scheme was announced as part of the Budget 2021 alongside an enhanced recruitment service by May 2022. Find out how much funding your business could be entitled to here. 

 

Action point
Read through our 12 Alternatives to Redundancy to reassure yourself and your senior management team of the different strategies available to mitigate against rising employment costs.

 

Our all-in-one solution

We offer a fully outsourced payroll and pensions service for SMEs – we also take on full responsibility with HMRC and The Pensions Regulator, offering complete peace of mind for your business. In addition, we provide a range of benefits, wellbeing, and employee engagement services to help you look after your valued employees, reduce turnover, and ultimately grow your business. 

Read more about our SMART Employment model here or book a free, no-obligation demo here.

Businessman Writing and Using Calculator

What Employers Need to Know About an Employee’s P6 Tax Code Notice

What Employers Need to Know About an Employee’s P6 Tax Code Notice 1368 912 Growth Partners

At intervals throughout the year, it may be necessary to change your employee’s tax code, and a P6 tax code notice from HMRC will usually be sent to you when it is time to do this.

These changes can occur for a variety of reasons, the main ones being:

  • An employee’s tax-free income, or personal allowance, has either increased or decreased
  • A new employee has provided you with a P46 and HMRC inform you of the correct tax code
  • You have sent new tax codes for your employees at the beginning of the tax year

 What is a P6 tax code notice?

Issued by HMRC, a P6 form provides new details of an employee’s tax code to their employer, such as previous pay and tax.

A P6 is a form issued by HM Revenue and Customs (HMRC) to employers to provide details of an employee’s tax code, previous pay, and tax.

Should you receive a P6 tax notice from HMRC, you must check and/or change the respective employee’s tax code and, if applicable, enter previous pay and tax.

How do you get a P6 from HMRC?

P6 tax code notifications are now sent online as opposed to the traditional paper form. This can help employees to keep on top of requests and ensure everything is accessible in one easy place – your HMRC gateway.

Does a P6 override a P45?

In most cases, a P6 form will actually override a P45.

For example, if you take on a new starter who joins without a P45 as they have not yet received it from their previous employer, but they fill in a new starter checklist instead, the P6 will override the P45, even if it eventually becomes available at a later date.

This is because a P6 is issued by HMRC and is therefore considered more up to date and relevant than a late P45.

Do you need help handling your employee tax code changes?

The team at Growth Partners have many years of experience helping businesses to deal with tax code notifications, ensuring all matters are dealt with quickly and efficiently.

Simply contact us today to find out more about our services and how we can help you to change your employee’s P6 tax code as per HMRC requests.

Employer discussing with employee

12 Alternatives to Making Redundancies

12 Alternatives to Making Redundancies 2560 1707 Claire Hannon-Boyle

Unpredictable customer demand and uncertainty feel very much a part of everyday life at the moment. For many businesses, staff costs are the single largest expenditure, so balancing spend against output is a key consideration – particularly in sectors where the order book is a lesser-known quantity, and the topic of redundancies is never too far from the agenda.

Many businesses may find themselves looking at what they need to do to adapt and help to safeguard their future. This is no mean feat.

So what can you do to reduce costs and avoid a situation where a headcount reduction via redundancy is necessary? First let’s start with options.

12 Alternatives to Making Redundancies

  1. Compulsory holiday
  2. Overtime ban
  3. Career breaks
  4. Unpaid leave
  5. Lay-offs
  6. Short-time working
  7. Recruitment freeze
  8. Natural attrition
  9. Flexible or part-time working
  10. Cross-training
  11. Policy changes
  12. Pay cuts or pay freezes

1. Compulsory holiday

You can ask staff to take holiday in downtimes which not only helps control work distribution but also assists the operation during busier periods by ensuring a full headcount is available. This hopefully also means the need for overtime is minimised.

Be careful how this is applied though.  If there is minimal leave to take later in the year, burnt out staff can be a real problem as they are not as effective and it could result in unwanted turnover.  As one of the most highly prized employee benefits, limiting the scope for personal choice in how annual leave is used may have a devaluing effect. Mandated leave is also likely to impact the cost and location of a holiday, or whether the employee is able to spend that time with friends and loved ones.

Ensure correct notice is given to take holiday – either follow contractual terms or your company policy. In the absence of this, the general rule is that notice twice as long as the leave to be taken should be given i.e., two weeks’ notice to be given for one weeks’ leave.

 

2. Overtime ban

Stopping non-contractual overtime is simply a matter of transparent communication.

People will be more likely to understand and buy into this measure when you are specific about which areas of the business this applies to, why and the timeframe.

However, if this is contractual or if you suspect this might be considered contractual through what is known as “customer and practice” i.e., clear history of this being used or with known rules etc, it will be necessary to agree this prior to application, and it is advisable to get any agreement to vary this term in writing.

 

3. Career breaks

Career breaks are arguably more practical for larger organisations or for those with more senior employees who are more likely to have larger savings pots to rely on.  Nevertheless, don’t make assumptions!   You are unlikely to know the ins and outs of personal finances so remember to offer to all.

Career breaks allow people to remain an employee, but they agree to receive no pay during the career break.  It’s a matter of policy whether they continue to receive other benefits, such as company car, health care etc.

If you are considering this, a top tip is to reserve the right to turn down volunteers to avoid a situation where it negatively impacts key parts of the operation.

 

4. Unpaid leave

It usually takes a few weeks to a month to see the benefit of this option in reducing wage costs.

In all cases it’s necessary to get the employee’s agreement, so better to ask for volunteers in the first instance.

This is a good short-term measure which may suit both parties while also protecting employment.  While not legally required, it’s best practice to put any agreement in writing.

Employer discussing with employee

5. Lay-offs

Laying off staff is when an employer takes an employee off work and off pay for at least one working day. Effectively it’s sending the employee home temporarily. It’s used as a response to a lack of work, and again, an alternative to making redundancies.

There is a statutory scheme for laying off staff, but a lay-off clause in the employment contract is required in order to implement this. That said, if you have no existing contractual right, you can ask people to agree to this.  Often if the employee knows this is a last resort and that more permanent solutions, such as redundancies, may need to be considered they are more likely to understand and accept this course of action.

Invoking a lay off is a specialist area of HR and we would advise you seek professional support if considering this.

6. Short-time working

Short-time working is similar to lay-offs, but rather than providing no work, the employer provides some work. So, in effect is reducing employees’ working hours.

As with lay-offs, an express clause in the employment contract is required in order to implement short-time working. If you have no existing contractual right, you can ask people to agree to short-time working.

Employees who are put on short-time working or lay off are entitled to pay on the days they do no work at all. This is called statutory guarantee pay and is the legal minimum an employer must pay.

Statutory guarantee pay is £30 a day for five days in any three-month period. Employees who usually earn less than £30 a day will get their usual daily rate.  The maximum an employee is entitled to is £150.

If an employee works part-time, their entitlement is worked out in proportion to their part-time hours.

Employees can however apply for redundancy and claim redundancy pay if they’ve been laid off or put on short-time working and receive less than half a week’s pay for:

  • four or more weeks in a row, or
  • six or more weeks in a 13-week period

So, while this can be a very low-cost solution, it really is a last resort before needing to commence compulsory redundancies.  Equally, the specific rules and criteria above can be quite complex to navigate, particularly where larger groups of the workforce are involved.

It is therefore always advisable to seek professional advice if you are considering this option.

 

7. Recruitment freeze

By applying a recruitment freeze no additional costs are added to the pay bill but care in application is required, as a blanket ban is a fairly blunt tool.

Critical positions which service customers or those that are a key source for chasing debt or generating higher levels of demand are likely to still be needed. So while hiring during difficult times might initially seem counterintuitive, it may be vital for you to stay afloat.

If budget is really tight, consider the potential of redeploying people from one area of the business to another.  Time spent recruiting could be better spent retraining and upskilling existing employees. Also, continuing to invest in workforce skills is a far more powerful message so don’t miss the opportunity to communicate this.

 

8. Natural attrition

Natural attrition is the term for voluntary leavers from a business over the course of a year.

Over the past few years, UK turnover has sat around 15% per annum though this varies hugely dependant on sector. So, if you are planning to strategically downsize your business, would you consider cutting more than this percent of your workforce?

If you don’t feel confident about the number and reason for leavers in your business, then establishing your natural attrition rate is certainly data you need to know to help make a more informed decision.

Allowing attrition to happen organically should be considered one of the least risky options and removes the angst around more compulsory options.

However, by not backfilling roles it may mean heavier workloads for others. It also means you have far less control in determining where job losses take place.  Explaining why you are not backfilling and recognising the bigger workloads for the team, will at least show you have weighed up all the options.

Also bear in mind, movement in the jobs market has slowed as people take a more cautious approach during these uncertain times.  So, if action is needed now, it might be prudent to consider other options.

 

9. Flexible or part-time working

For many, one of the benefits the pandemic has brought is a reprioritisation of personal and social lives.  Coupled with the fact many employees have now by necessity experienced a range of flexible working arrangements, perhaps due to self-isolation, childcare or other needs.  Flexible working options such as part-time, compressed hours, varied start and finish times now feel much more achievable.

Just as views on where people prefer to work have altered, so have perceptions around the amount of time needing to be spent focused on work.

Again, don’t make assumptions here, you may now have a much greater pool of people who would consider this suitable for them.

Business discussing options

10. Cross-training or multi-skilling

As mentioned above, a recruitment freeze is preferable to entering into a redundancy situation. However, you might still need to cover certain tasks, and cross-training or multi-skilling your existing employees could help.

Bear in mind it’s a perfectly legitimate expectation that by increasing knowledge and skills, multi-skilled employees become more valuable,  so you should expect some form of recompense may be needed.

Again, think about the low-cost solutions.  The pandemic has certainly taught us that flexi-time, hybrid or home-working can work.  Failing that, a future bonus or incentive if certain performance targets or outcomes are met is perhaps another carrot to help get buy-in for this option.

 

11. Policy changes

Some company policies are contractual or have become contractual over time through customer and practice. Key ones to look at here are sick pay, overtime, redundancy, expenses, and training.

If these are no longer viable due to the costs involved, discussions with your employees are helpful (even if not legally required), so they understand why the change is necessary and feel included in the decision-making process.

Being open and honest about alternatives i.e., salary cuts or potential job losses will also help people to contextualise the predicament.  The principle of prioritising other areas first to save money, rather than electing for headcount reductions, is hard to disagree with.

 

12. Pay cuts or pay freezes

You will need express consent from people to implement a pay cut. Otherwise, you risk a breach of contract and unlawful deduction of wages claim.

If you can’t persuade people to agree, you can give notice to end the existing contract and rehire on new terms.  This is a dismissal in law so dependent on the employee’s length of service, there may be a risk of an unfair dismissal claim.  But as long as there is a sound business reason (as judged by a reasonable employer) this is likely to be deemed as what’s known as a “some other substantial reason” dismissal, which can be a valid reason for ending employment (see section 98 of the Employment Rights Act 1996).  Again, where unpopular measures are being considered, think about sweetening the deal in some way – working from home, flexible start and finish times are often highly prized by employees.

As this option will only offer a future saving, short-term immediate measures may also need to be considered in conjunction with this, if cashflow is particularly precarious.

 

How to approach redundancy with employees

Now let’s talk about approach.  It goes without saying meeting your legal obligations is the minimum that’s required.  But how these options are handled could be the difference between success and failure.

Being well prepared with facts and data, as well as approaching things with honesty and transparency is a good starting point.  You’ll get far more acceptance and understanding where you level with your employees.

It’s also important to note, none of these options come without some form of downside.  Whether that’s an immediate negative impact on morale or potential for creating turnover among some of your best talent further down the line – particularly if things don’t return to previously experienced levels.

Putting yourself in their shoes will help you anticipate likely questions and should enable you to present a clearer picture of what needs to change and why, without glossing over the impact on individuals.

Sufficient details such as when and how long for, will also help add reassurance measures are temporary, rather than a full-scale shift in culture/policy or watering down of the employee offering.

Finally, there is a balance to be had between being transparent and unsettling people.  If adopting any of these measures will genuinely prevent future job losses, then say so.  If on the other hand it is more hopeful optimism before inevitable job cuts, a more dogmatic approach may be required.

About the author

Claire Antony Growth Partners

Claire Antony HR Business Partner at Growth Partners

Claire holds a depth and breadth of experience in HR, having operated in standalone roles supporting senior leaders, as well as leading HR/payroll teams, operating at Board level. Working across a variety of sectors, from micro businesses to multinational blue-chips, Claire is passionate about finding solutions to help businesses succeed in their goals.

Business growth solutions

When you’re investing time into running your successful business, it can become difficult to keep on top of everything. Contact the team at Growth Partners today to find out more about our all-in-one solution for payroll, pensions, benefits, wellbeing, and employee engagement services.

To chat to Claire Antony about this topic, email claire.antony@growthpartnersplc.co.uk or call 0116 340 3116

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