Chancellor Rishi Sunak has announced that the National Living Wage (NLW) will rise from £8.91 an hour to £9.50. The NLW applies to all those aged 23 or over, while the National Minimum Wage (NMW) applies to those above school leaving age but below 23. The Treasury confirmed that the change would take place from April.

According to the Government, the 59p per hour uplift means that a full-time worker on the NLW will see a pay rise of over £1,000 per year. Originally, the NLW was set to reach over £9 an hour by 2020, but this was delayed by COVID’s impact on the UK economy. This increase sits alongside the NMW going up to £9.18 an hour, and the Apprentice Rate increasing to £4.81 an hour.

Considering the simultaneous rise in inflation, cost of living, and National Insurance, there’s a question mark over how much better off workers will actually be. 

Naturally, the increase will have an impact on HR teams and employers as well as employees. Here’s what you need to know:

1. Payroll adjustments

Payroll systems need to be updated to ensure that employees on the NLW get the hourly boost. It’s also important to communicate the uplift to employees, so they’re aware that their pay is going to change. When it comes to payroll adjustments, utilising automation tools within your HR/payroll software is always the best bet to minimise errors.

2. Increased costs

The uplift will affect most businesses with a large proportion of employees on NLW. Generally, this would relate to most employees in retail, hospitality, and the care sector. For companies still getting back on their feet after the pandemic, it could be a big cost to absorb. 

3. Salary sacrifice and benefits

Benefits or salary sacrifice agreements could be impacted, as it’s crucial that employees’ earnings don’t fall below the NLW. Benefits such as cycle to work schemes, company cars, remote working equipment, childcare vouchers, etc. all fall under an employees’ pay package. So, it’s important that companies have systems in place to manage the benefits, with tools that help them manage NLW calculations. Otherwise, some companies that were once comfortably sitting above NLW could be caught out by the rise.

Generally, the 6.6% increase is a positive step for many workers and will help some struggling households with the squeeze. There’s still a substantial gap between the pay rise and the rising cost of living, which is currently at 6.2% inflation rate, so HR teams should have their door open for employees who are struggling to make ends meet and provide support where possible. 

How Phase 3 can help

As HR software and Payroll experts, we’re on hand to support HR teams in navigating these changes. If you’d like to find out more about how we can help, don’t hesitate to reach out.

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