By Christian Mancier, Corporate Commercial Law Partner at Gorvins Solicitors
With the ‘National Living Wage’ set to come into play in April 2016, it is vitally important for businesses to prepare themselves. As the old adage goes: fail to prepare, prepare to fail. The government have committed to a national living wage (NLW) of £9 an hour by 2020 for all workers over the age of 25. It has been introduced to meet the demand of increased living costs, but it doesn’t have to be bad for business. Here are some tips to help your business prepare:
1) Reassess outgoings and prices
Naturally, an increase in one part of your business, for example the wage bill, will have to be offset in another area of the business. There are a number of ways to offset costs and each will be dependent on the business sector you operate in. One way is to increase your prices to try and pass a percentage of this increase on to someone else. Another way is to look at your costs and reduce your outgoings, which may be to do with staff, hours or providers and services that you use.
2) Take advantage of government legislation
The Annual Investment Allowance (AIA) was due to be reduced to £25,000 this year, but it has instead been capped at £200,000 for the next five years. The AIA allows small to medium businesses to make 100% tax-deductible investments when you buy assets that you keep to use in your business, such as equipment, machinery, tools and business vehicles. This will give business security when planning capital investment and increase cash flow as it can be claimed in the year of investment. All of which helps to enhance business confidence.
Further good news for businesses is the reduction in corporation tax from 20% to 18% by 2020, meaning Britain will have the lowest corporation tax of any G20 nation, allowing British businesses to be more competitive on the world stage.
3) Review payroll
Reviewing your employee hourly rates is a key step in making sure they will meet the new living wage rates. As the new stipulations are age-based, the age of your workers are a key factor. The NLW is an entitlement to those over 25 years old with others rates applying to different age categories. Currently, there are apprentice rates for those aged between 16 to 18 and those ages 19 or over who are in their first year, under 18 rates, 18 to 20 and then an over 21 adult rate.
It would be a good idea to have an in built system alert to notify you when a worker has a birthday and if they are eligible to move up to the next bracket. Making sure your systems are up to date and able to accommodate birthdays will make your payroll easier to manage.
4) An investment in your assets
Your workers are one of your biggest assets. A wage increase is likely to enhance workforce happiness, productivity and decrease employee turnover. These outcomes have been seen in many cases where an employer has increased wages of their own choosing, such as Costco and Aldi, as well as being verified in an independent study of the Living Wage policy in London where 80% of employers found a boost in the quality of the work of their staff and a fall in absences by 25%. Making your staff feel valued is going to go a long way in helping your business to succeed.
5) Plan ahead and keep up-to-date
The rise in national minimum wage doesn’t have to be a big disruption for your business. The £9 rate for over 25s doesn’t come in until 2020, with increments to take place in stages from April 2016. Your business, therefore, has plenty of time to plan ahead. From April 2016 the rate will be £7.20 (it is currently £6.50 for over 21s), with the national minimum wage still applicable to those under 21. It hasn’t been broken down how the NLW will reach £9 by 2020, but we know it is going to happen, so planning ahead is vital.
Keeping tabs on the news, joining a Linkedin group, or even joining a relevant business groups, such as the Chamber of Commerce and the Forum of Private Business, will give you advance warning of any changes that are planned to take place. Such forums can also give you regular employment law updates and keep you in the loop so nothing comes as a shock.
6) Networking and shared support
Pooling resources and sharing support may be one way to support your business, and those in your network, at this time of change. You may consider sharing resources to pay for a payroll or HR advisor to support you. There are also flexible and social business offices available to help you save on costs. Here you can grow your network, work alongside, collaborate and do business with other like-minded business people.
7) National Insurance Employment Allowance
In the latest budget the National Insurance Employment Allowance was increased by 50%, to £3,000. This is a way for small businesses to reduce their wage bill and possible offset the cost of the NLW. The chancellor explained that the changes will allow a company to employ four members of staff, full time on the new NLW rates without paying any national insurance.
8) Go social and create a buzz
Communicating your changes is a good way to create a positive feeling around the workplace, whilst letting the outside world know about the changes you are implementing. Being proactive within your business and keeping your staff updated of the changes will help to show dedication and clarity, making your staff feel valued and benefitting your relations. You can even implement your changes early if you are in the position to and apply for accreditation as a Living Wage Employer, which will enhance your company’s reputation.
9) Seek more advice
Preparing for an upcoming wage increase may be a little daunting, but there is help and advice available for employers on rights and obligations at work. Acas can provide free advice on best practices, policies and on resolving conflicts. You can ring their helpline on 0300 123 1100 or use the Acas Helpline Online to ask questions. They also have a full A-Z list of advice that can be given.
If you are in the positon, getting professional help may save a headache or two. You may consider contacting an accountant, HR advisor, payroll specialist or a solicitors for legal support.
A positive mental attitude can go a long way. In 1999, the then Labour government introduced the national minimum wage for the first time. It was shouted down and campaigned against by employers who insisted it would be disastrous, which were found to be untrue. Although an increase in wages will be tough for many businesses, there are many ways to offset this and use it to benefit your business, plus you won’t be at a competitive disadvantage as every company has to do this. The NLW is also a good social move, which means that your clients will generally have more money to spend.