Billed as a way to boost the income of low paid workers, there are questions over whether or not the new Living Wage rate will in fact jeopardise Northern Ireland’s fragile job market.
The new measure was announced by the Chancellor last year, immediately sparking fear that it could render a number of posts uneconomical.
Concerns have already been raised by shop owners and small businesses who may struggle to pay the new rates of £7.20 per hour from 1 April 2016 for employees aged 25 and above.
The new Living Wage, which sits alongside the National Minimum Wage for workers aged 18-24, is the first in a series of increases which are set to reach £9 by 2020.
So far, reactions to the introduction of this new measure have been divisive. Detractors anxiously predicting major job losses and reduced working hours have been accused of undue caution by those who anticipate an uplift in productivity and motivation brought by the wage increase.
It is undeniable though, that the cost implications arising from the introduction of the Living Wage are likely to have a greater impact on local businesses as Northern Ireland wage rates lag behind those on the mainland.
With less than two months until the introduction of the £7.20 rate, now is the time for employers to consider the practical implications it will have on their business and to assess the measures which must be taken to prepare for its arrival. Employers should also plan for an increase to the National Minimum Wage rates in October.
HMRC has recruited a specialist team to police compliance and penalty fines will be imposed upon employers who fail to conform to the new measures. This is in addition to the arrears paid to workers and can be up to 200% of the original underpayment, but will be capped at £20k per employee.
HMRC’s recent ‘naming and shaming’ of those who failed to implement National Minimum Wage increases, should also deter local businesses from non-compliance.
At this stage, employers should make communication of the new rate to staff a priority. Reviewing and updating employee records, and identifying which employees even qualify for the new wage should also be completed sooner rather than later to save headaches come the 1 April. Implementing a process to identify employees who qualify for the rate in the future will be crucial to the smooth running of the new measure.
Employers with staff paid weekly or fortnightly will meet the transition head on and will need to be particularly careful as it could lead to a mix of rates applied in week one of the new tax year.
One benefit which may ease the strain on small businesses is the increase to the new Employment Allowance which will rise 50% to £3,000, while the future reduction in corporation tax will also help to offset the impact of the new wage rates.
Although the actual impact of the new Living Wage on both individuals and businesses will remain unseen for several months, employers should seek advice now in order to suitably prepare for the transition.
For further information or advice on the new Living Wage rate, please contact Sam Beattie.