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National Living Wage Increase Affecting Businesses

Published: Thursday 7th May 2020

The ambition to eradicate low pay by raising the UK’s minimum wage could prove “stretching” for employers, as a sharp national living wage increase could put added pressure on companies, leaving them struggling. As of April 2020, the government introduced the new national living wage (NLW) rates and confirmed on a further note the aim of raising it to an hourly rate of £10.50 within five years.

The Changes To National Living Wage & National Minimum Wage

Living Wage word concept, national living wage

Starting 1 April 2020, there has been an increase in the national living wage by 6.2% on the previous rate, as well as in the national minimum wage (NMW). The rate increases now stand as follows:

  • Employees aged 25 and above: Increase of 6.2% from £8.21 to £8.72 per hour
  • Staff aged 21 to 24: Increase of 6.5% from £7.70 to £8.20 per hour
  • Employees aged 18 to 20: Increase of 4.9% from £6.15 to £6.45 per hour
  • Employees aged under 18: Increase of 4.6% from £4.35 to £4.55 per hour
  • Apprentices: Increase of 6.4% from £3.90 to £4.15 per hour

Government’s Covid-19 Business Package Of Support

In light of the pressure on businesses caused by the outbreak of COVID-19, the government has unveiled a package of support to protect companies, including an initial £330 billion of guarantees for businesses, £20 billion in business rates support and a new Coronavirus Job Retention Scheme to help pay people’s wages.

Financial Support concept on the gearwheels

For further information on financial support for businesses and workers from the government during the Covid-19 crisis, you can visit the Business Support website. In addition, the government has also promised to continue to support businesses in order to help them comply with NMW rules. This includes future action such as improving NMW guidance, visiting new small business and providing a support help.

The Effects Of NLW Increase On Businesses

The response of many employers to these changes has been slightly more reticent, pointing to difficulties currently faced by many businesses, especially due to the challenges amidst the Coronavirus outbreak. SMEs are concerned that the rises could have negative effects particularly in the face of tough economic conditions. In response to this national living wage increase, small business employers will likely have to raise prices, recruit fewer workers, cancel investment plans, or even consider redundancies.

business team, businesspeople group walking at modern bright office interior

Of course, there’s always a danger of such a sharp increase since wage increases aren’t much good to workers if prices rise, jobs are lost and there’s no impact on productivity because employers are forced to cut back on investing in tech, training and equipment.

Yet a national living wage increase of this magnitude could still prove successful, sustainable, and viable for companies if matched by action to raise productivity, and the government’s efforts to align tax and benefits policies as well as enforce compliance. Finally, a policy to reduce the National Insurance contributions that firms are required to pay, which was announced in the Budget, will help small businesses foot the bill to meet the wage increase.

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