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.
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.
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.
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.