Businesses will be required to review and comply with the new National Minimum Wage rates that are due to come into force on 1st April 2023 and will need to ensure they have the budget to ensure affordability. 

The new rates will be:

  • Age 23 or over – £10.42
  • Age 21 to 22 – £10.18
  • Age 18 to 20 – £7.49
  • Age 16 to 17 – £5.28
  • Apprentice – £5.28

This reflects an increase of 9.7% to 10.9% across the age bandings. Whilst the increases are intended to support the living standards of lower paid workers in light of the cost-of-living crisis, it is a massive concern for businesses that are trying to keep their heads above water and survive the current climate. 

When we look at a full-time employee this increase in hourly rate will equate to a minimum annual salary of around £20,000 (depending on the full-time hours per week). With on-costs this amounts to £26,000 each year for all base/entry level roles which is a significant amount of money for businesses to find. 

Don’t get us wrong, we absolutely support an increase in salaries for lower paid workers and that all employees should be paid their worth, and we appreciate how important a decent pay rise can be every year, in terms of morale and productivity. However, there is an important balance to be found to ensure employers don’t react in a way that leaves workers even worse off. 

Some employers will have already been contending with difficult trading conditions and increasing costs and may struggle to absorb any further large increases at this time. As such, there is a concern that we will see more businesses having to make cuts with the first cut being wage costs i.e. redundancies.

The other consideration is the impact this increase has on all other salaries within a business. Over the last few years, the gap between the National Living Wage rate and other wages has narrowed which has been a contributing factor to employees looking elsewhere for a higher paid salary if this can't be matched by the current employer.  

Depending on the industry you operate in, some businesses will be unable to pass any increase on to their end-user which means being left with few options to find the additional funds; sell more, reduce costs to save money, or reduce profit and spend your reserves.

Now this all sounds very negative but we like dealing with change head on and not burying our head in the sand. So let’s talk about what we can do to plan for the increases. We would advise that you take some time before April to review your business costs and do the necessary workforce planning. 

To get you started, we’ve jotted down some things for you to consider:

  • Update budgets to cover the new increase coming into force for any workers on National Minimum/Living Wage 
  • Carry out salary benchmarking on all roles within the business – you may not be able to afford to increase salaries, but it is important to be armed with the information and plan accordingly 
  • Review the business structure and if there are any concerns about affordability act quickly and seek advice on the impact this may have on your workforce 
  • Don’t leave it until the last minute – be proactive with any current people issues – review your workforce, deal with any performance issues, restructure where needed and invest in the right support *wink wink nudge nudge*

For existing employees and new starters, you will need to ensure that you are paying the correct rate from 1st April 2023 onwards and you may need to update their contracts if they don’t already comply.

If this all seems a bit overwhelming or you’re not sure where to start, let us point you in the right direction. We’re happy to work with you on a full review and plan or if you just need a sounding board - get in touch and we’ll go from there! 

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