Preparing for the Living Wage Change: How Employers Can Remain Compliant in 2023
We review some of the wage changes coming into effect this month and what this means for UK business.
National Living Wage or Real Living Wage?
Since 1 April 2016, the National Living Wage has been the term used to talk about the legal minimum hourly rate that workers aged 23 and over should receive in the UK. On 1st April 2023, it increased to £10.42 per hour, along with increases to the National Minimum Wage (for younger employees), which now stands at £10.18 for 21 and 22-year-olds, £7.49 for 18, 19 and 20-year-olds, and £5.28 for the under-18s and apprentices. The rates are the statutory minimum remuneration rates for workers, and so it is therefore vital for employers to take the necessary steps to implement these new rates in this month's pay runs, ensuring that employees are paid correctly.
In addition to the National Living Wage, some employers will also need to take note of the May deadline for implementing changes to the Real Living Wage. This is a concept which has been around a good while longer than the National Living Wage. It is calculated independently of government by the University of Loughborough for the Living Wage Foundation and is based on the actual cost of living in the UK. It is designed to provide workers with a wage that allows them to live a decent and dignified life, covering all their basic needs such as housing, food, clothing and other essentials. The Real Living Wage rate currently stands at £11.95 for London and £10.90 for the rest of the UK and applies to all workers aged 18 and above.
Although these rates were announced in September 2022, employers who are signed up to the scheme have a six-month period in which to implement the increases, and consequently, any employers who have chosen to join the scheme should become compliant with the new rates of pay by May if they wish to keep their accreditation.
Taking it step by step
Either one (or both) of the threshold increases will impact on most businesses, with employers needing to adjust their pay structures accordingly. This can be a complex process, but there are some simple steps that can be taken to ensure compliance and avoid penalties:
1.Identify Affected Employees
The first thing to do is check through company records to see which employees are currently receiving pay at a lower rate than the new requirement.
2. Calculate the Difference in Wages
Next, find the shortfall between their current rate and the new rate. This will help determine how much of a pay increase is required.
3. Adjust Salaries
Now scale it up to the number of hours worked. Adjusting a worker's salary - unless hours have been cut - is likely to involve a pay increase, so it is important to consider the impact on the overall wage bill when making these adjustments. If things are tight, the money will need to be found (or cut) elsewhere, especially in the case of the National Living Wage, which is mandatory.
4. Communicate the Change
It is crucial that the change is well-communicated to affected employees. Ensure they understand their new pay rate so that no confusion or misunderstandings arise, and maybe also take this opportunity to check that they are aware of their legal and contractual entitlements.
5. Monitor Ongoing Compliance
Regular audits or reviews of payroll can help maintain ongoing compliance so consider building ongoing monitoring into company payroll systems. Employers who do this can rest easy knowing employees continue to be paid the correct rate while the business remains free from penalties and any associated bad publicity.
Further Considerations
Once these steps have been implemented the new obligations have been met. Some businesses, however, will find that after taking care of workers at the lower end of the pay scale, the higher-earning staff also benefit from some attention. After all, those with greater experience and responsibility usually have that reflected in their pay and may feel disgruntled if they perceive that no longer to be the case. It is prudent to check across the business, make sure that some pay scale differentials are still in place, and possibly make further increases, where budget allows. This will help a business to remain attractive to potential employees and retain existing workers who might otherwise be tempted away.
Coming into line with the Living Wage Foundation's rates - again, if budget allows - is another great way of gaining the attention of prospective candidates and the appreciation of current staff. A business can apply for accreditation through the foundation's website; a worthwhile demonstration of a company's commitment to ethics and fairness, which happens to bring a happy boost to brand image along with it. Remaining profitable is the bottom line though, so it is understandable that small businesses and those who employ many young people may struggle to do this.
Benefit to Business
Changes to wage rates for lower paid workers are an important reminder for employers to review their pay structures and ensure that everyone is being paid a fair wage. Of course, at a time when the cost of living is rising so steeply, supporting employees in achieving financial stability has never been so important, but there is an added benefit to business: a wider customer base with disposable income to spend on new products and services.
For advice and support relating to remuneration of employees, salary benchmarking and your obligations as an employer, contact Danton. We offer a free 30 minute, no-obligation call to discuss your situation.