New national Living Wage – A step in the right direction?

The New National Living Wage.  Is it a step up or a step in the right direction? – Well yes but let’s not forget the cost implications for you the business owner!

You may remember a blog post not so long ago about the increased burden this year on small business owners.  2016 sees the start of the flurry in terms of small businesses having to Auto Enrol their employees into a work place pension, plus the effects of the dividend tax, not to mention another budget next week and the introduction of the new National Living Wage.  It does seem that 2016 is a fairly tough year for small business owners.   

Not long since the last enforced pay increase

The National Minimum Wage was increased on 1st October 2015 from £6.50 to £6.70 for all employees aged 21 and over. It might not seem much I hear you say, well let’s look at what that did to the costs for the average small business owner employing a couple of employees.

  • If your employees were aged 21 and over and worked for an average week of 37.5 hours this meant an increase per week of £7.50 per employee.
  • This was an increased cost of £390 a year per employee so in this example that’s increased costs of £780.
  • Don’t let’s forget the increased National insurance costs for the employer of approx. £110 (let’s keep it round sum amounts for ease.
  • So that was the best part of £1000 increased costs on each and every small business owner in the UK who employ a couple of extra staff.


The New National Living Wage

From April 1st 2016 all workers in the UK who are aged 25 or over who are earning the minimum rate of £6.70 per hour will see an increase of 50p per hour to £7.20.  Oh and by the way, in all the literature the government states it is committed to increasing it still further each year.

Let’s go back to our example of our two employees.  What does this mean for the business owner in terms of increased costs oh and let’s not forget LOWER PROFITS!!

  • 5 hours per week with increase cost per hour of 50p = an increase of £18.75 per week, equalling approx. £1000 (again rounded up for ease) so for two employees that an extra £2000 a year .
  • The increased NI for you the employer is approx. an extra £300 (again rounded for ease).

So in 6 months you have seen your costs increase by £3000 in this example.  That’s a lot of extra sales you have to make to cover that cost in an already tough environment!


BTW – By the way

It is going to be policed in exactly the same way as the National Minimum Wage is currently. Did you realise that HMRC recently published a name and shame list of people who had not paid it. So if you deal with your own payroll then you might want to double check so you don’t fall foul!


The Pressure is on

Clearly the pressure is on to make more profits otherwise your business is going backwards!!  This is just one cost that is exerting a downward pressure on your profits.  If you feel you need a health check why don’t you give us a call we can help you look at other ways of increasing your profits and produce information forecasting your results for 2016 and beyond so you know where you are headed. You can contact us on 0161 410 0016


I hope your business goes from strength to strength in 2016!


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0161 410 0020

KMA Accountancy
Progress House
17 Cecil Road
Cheshire WA15 9NZ

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