How will the rise of the National Living Wage in April affect your small business?

By Alice Brunning

From 1 April 2016, all employers will have to pay employees aged 25 and over at least £7.20 per hour. The Federation of Small Businesses says its research indicates that 38% of small employers expect the National Living Wage to “negatively impact” their business. Below is a quick guide to the National Living Wage for small business owners:

How do I prepare for the changes?

You should check to see which employees are eligible for the new rate and take the appropriate payroll action. It is also important that you let the staff affected know about their new pay rate. It would be prudent to check that your remaining staff (who are under 25 years of age) are being paid at least the current National Minimum Wage.

How do I cope with the increase in my wage bill?

There are many practical ways that you can recover the additional costs. You may think about initially stopping bonus payments and cutting down on overtime. You can try to increase staff productivity by ensuring you have clear job descriptions and targets. The additional costs of your wage bill could also be passed on to your customers, by increasing the current pricing of your products/services.

What are the government’s plans for the future of the National Living Wage?

The government is committed to increasing the National Living Wage annually. There are already plans in place to increase the new wage to £9 per hour by 2020.

What are the penalties for non-compliance?

If you fail to comply with the new legislation, you could be fined 200 per cent of the amount owed to the employee (reduced to 100 per cent of paid within 14 days of the fine). There is a maximum of £20,000 fine per employee who has been underpaid. Those responsible for non-payment could also be banned from being a company director for up to 15 years.

Alice Brunning is a trainee solicitor in the Business Services Team at Barker Gotelee, Solicitors in Ipswich.

If you want to know more about the implications of the National Living Wage for your business, please call the team on 01473 611211 or email [email protected]