Night of the Living Wage

14th March 2016

National Living Wage Blog Zombie Hand

The end is nigh! New pay legislation shambles into view that threatens to throw payroll into turmoil. The National Living Wage has been haunting businesses since July 2015, lurking in the darkness and unstoppably shuffling closer with each day. Back in January, we speculated on how the National Living Wage would affect businesses and whether it would be a friend or a foe. Now that crunch time is approaching is your business prepared for the change? Don’t be dragged down by a horde of payroll changes, be prepared!

The first thing to consider is that payroll teams are having to increase pay for about 2.7 million employees across the nation. You’re looking at a serious number of man hours to make that change. While the HMRC say that there are only 4 easy steps to ensure compliance, it’s important to consider the time it takes to identify eligibility, make the changes and inform your staff of the change.

Be mindful of the response from your staff. A change in wages can be a sensitive topic within the ranks, as those who carry additional responsibilities may take umbrage with the change in the pay scale removing their incentive.

A clear and organised record of staff details and a full wages audit will arm you for the change. You’ll also need to review all of your policies and procedures. If you’ve written the hourly rate anywhere in training documents or employee handbooks, they will all need to be updated. If you’re currently recruiting, you may need to update the advertised hourly rate. An outsourced payroll provider can help protect you from any horde of legislative changes by ensuring automatic compliance, so be sure to liaise with them to stay prepared.

And compliance is vital. Failure to comply with the National Living Wage will be a penalty of 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. However, employers who fail to pay will be banned from being a company director for up to 15 years.

Prophets are heralding the end of days for UK businesses, with the retail sector being the first to fall. Unable to pay their staff, it’s predicted that 900,000 job cuts will be made by 2025. It’s understandable because an increase like this goes way beyond basic pay. An increase in basic pay means higher holiday pay, sick pay, bonuses and pension contributions.

The National Living Wage is predicted to lead to larger-than-expected increases in payroll costs among British businesses, according to reward experts. Numerous impact studies suggest that by 2020, the National Living Wage will be £9.35, rather than £9. As business are forced to adapt to the future, many are considering passing the costs onto their customers or simply culling staff. Solutions like this might seem great in the short term, but these defences won’t last forever. Businesses need to innovate by reviewing their income streams and business structure in order to bear the cost rather than passing it down the line.

Many businesses may look to outsource various departments to manage costs. For changes like the National Living Wage, leaving your payroll to an outsourcer,  to defend you from the horrors of massive compliance changes,  could be the attractive option.