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£1,000 pay rise – coming soon

If you employ anyone 25 or older on pay levels based on the Minimum Wage, you will have to put their pay up by about £1,000 a year soon. Then it will carry on increasing by roughly the same amount each year, so it’s going to have a big impact on some employers’ budgets.

The Minimum Wage is changing in April 2016. For a start, it’s being rebranded as the National Living Wage (no relation to the Living Wage campaign calling for higher pay levels). For workers under 24, the pay rates won’t change. But for people aged 25 or older, the minimum wage goes up by 50p an hour, from £6.70 to £7.20.

What does this mean for you? Firstly, it depends if you have any employees earning under £7.20 an hour who are aged at least 25.

If you do, then you need to work what this means for your budgets and this depends on the length of your working week. If you have a 7.5 hour day and a 37.5-hour week, that means paying at least £14,040 a year, an increase of £975. If your working day is 8 hours totalling a 40-hour working week, then the lowest amount you can pay will be £14,976, an increase of £1,040.

To define your working day, if you haven’t done this already: take your employees’ start and end times, total the number of hours and subtract half an hour or an hour for their breaks, depending on what you have in place. You have to give people breaks but these can be unpaid.

Here’s an example: if your normal working hours are 9am to 6pm with a lunch hour, you have an 8-hour working day (9 hours minus 1 hour for lunch) and a 40-hour working week. If people work through their breaks and work later than 6pm, that’s their choice and not being imposed on them. (This is a fairly simple way of explaining it – it’s just to help you calculate your working hours for now.)

Certain sectors who tend to have these pay levels, such as retail and hospitality, or organisations who have less money to pay higher wages, such as smaller charities and sometimes start-ups, will have to pay an extra £1,000 per person for any employees aged 25 or above from 1st April. That’s a big jump and especially if you have a number of employees in this position.

It also means pay rates for people under 25 will not have to increase, unless you choose to do this or unless anything about that changes before April. That means people on Minimum Wage levels will see their pay increase by £1,000 when they reach their 25th birthdays, so check if you have any employees coming up to that age.

This higher pay level for people aged 25 and up will continue to increase each year until it reaches £9 per hour in 2020. That’s £17,550-£18,720, again depending on the hours worked, which means paying around £4,500-£4,800 more per person in 2020 than now. If you’re likely to hire people over the next few years, you need to bear those figures in mind.

Don’t forget pay levels also have a ripple effect on other things, such as redundancy payments or if you make payments for notice periods or holiday when someone exits your company. If you’re planning any changes that might end anyone’s employment after 1st April, you need to check your figures for these costs are up to date.

As always with these changes, there’s a possibility that things might not go ahead as planned. If anything does change, we’ll make sure you know quickly. You can also see more details about the Living Wage / Minimum Wage here.

By Brian