A new national minimum wage came into force on 1st April 2016, meaning workers aged 25 and over now receive £7.20 an hour. This is a 50p increase on the previous rate of £6.70 an hour. Businesses are set for a 7.5 per cent increase in salary costs as a result.
HMRC is responsible for enforcing the change and should employers fail to comply, they can be publicly named and shamed, so it is vital that businesses take note of these changes. The threshold will be increased every year with the aim being to reach 60 per cent of median pay throughout the UK by 2020, when it could then be as high as £9.35 an hour. More than one million workers will benefit directly from the change, which will see their pay packets increase by up to £900 per year.
The move is part of the government’s vision of a higher wage, lower welfare and lower tax society, however critics warn that 900,000 jobs could be lost in the retail sector. This, amongst other sectors including hospitality, will be where the policy’s impact will be concentrated, as these industries account for 46.5 per cent of all minimum wage jobs.
Robert Ellis, Principal at Ellis & Co, said of the news: “The introduction of this new National Minimum Wage has divided opinion, with some criticising it as an additional cost to the business and others hailing it a welcome step towards a more equal society. Either way, the move will have a far-reaching impact on the wider UK economy and business profitability will be reduced in certain sectors.”
Josh Hardie, CBI Deputy Director-General, policy and campaigns said in the introduction of a new National Minimum Wage, there needs to be balance.
“If the National Living Wage doesn’t get this [balance] right it will risk being unaffordable for many firms,” he said.
“Smaller businesses and those in key sectors like hospitality, retail and care are likely to be particularly affected.
“Companies have been looking at their business models to manage the extra costs by reorganising the workforce, raising skills, improving leadership and management capacity and investing in new technologies. But even so, some may be forced to reduce hours and benefits for their employees.
“Given that this policy is significant for so many businesses the Government should listen to – and act on – the advice of the independent Low Pay Commission, which is well-placed to monitor and recommend the best way to make this policy contribute to prosperity over the long term.”