The National Minimum Wage Increase – What Should You Do To Prepare?
by on February 3, 2023
The National Minimum Wage (NMW) was introduced in April 1999 to protect low paid workers from exploitation, without having a detrimental effect on employment or the wider economy. As of April 2023, the minimum wage is rising.
Here, we look at what end clients and recruitment companies can do to prepare.
The first NMW was introduced in April 1999 and was set at £3.60 per hour for adults over 22 years of age. This covered 1.2 million adults and effectively gave them a 10% pay rise.
Despite fears that it would have an adverse effect on people’s employment prospects, it actually increased productivity and had the effect of decreasing inequality, leading to a reduction of in-work poverty.
From April 2023, the rates will change to:
- National Living Wage £10.42
- (over 23 years old)
- 21-22 year old rate £10.18
- 18-20 year old rate £7.49
- 16-17 year old rate £5.28
All employers, regardless of size, need to pay the correct rates, and if you’re an agency worker or if you work part time, you’re entitled to the Living Wage or NMW.
The NMW and umbrella company employees
Employees of umbrella companies have the same employment rights as other types of workers, therefore, can expect their rates to rise after April 2023. This information should be set out in their KIDs, and workers should expect to be informed of this rise by their umbrella company (if you haven’t had this information, make sure you ask).
Umbrella employees also need to be aware that if your salary increases, so will your income tax and National Insurance Contributions (NIC). If you’re working and currently paying tax but also claiming any sort of benefits, you should speak to either your employer or your umbrella company to discover how this will affect the amount of money you receive and the tax and NIC you pay.
The NMW and employers
There’s no doubt that everyone is feeling the squeeze in the current cost-of-living crisis, employers included, but paying your employees the minimum wage is a legal requirement, and you’ll have to adjust your rates accordingly come April. If you don’t, you could face a fine or even prosecution.
It’s particularly difficult for some employers because in addition to increased salaries, their associated costs, NIC and holiday pay will rise, too. For some employers it will mean increasing their prices to their customers; others will look at ways of reducing their overall business costs, and some will negotiate with their employees to reduce their hours.
If you feel your business will suffer from the increase, the time to start planning ahead is now, so that you’re well-prepared for every eventuality.
The NMW and recruiters
Recruiters may be affected in two different ways:
- Employers may have to pass on the cost of the increase, and that could potentially affect recruiters’ margins
- There may be a decrease in hiring which will affect recruiters directly, impacting their profitability.
However, there are also positives to the increase in the NMW:
- Employers are able to attract higher quality candidates, meaning that recruitment becomes easier, especially in today’s candidate-led market
- Rates of retention improve if staff are earning enough money to make ends meet
- Employee engagement and productivity increase, absenteeism decreases, and the employer’s brand is enhanced, meaning that recruiters have an augmented product to propose to prospective candidates.
It’s important that recruiters act now to negotiate the correct assignment rates for their candidates, to ensure that employers are paid the correct rates. If necessary, new KIDs must be issued to contractors.
When considering their own businesses, recruiters may have to find ways to mitigate the impact of the NMW, examining their own supply chains, to discover if there are costs that can be cut.
However, the most important thing that recruiters can do is to partner with a payment provider that is able to manage the payments they need to make and to ensure that they are putting best practice into effect, such as those that Payme offers.