Recently, 113 companies were publicly named and shamed by HMRC for failing to pay the National Minimum Wage. Monsoon, one of the larger companies named, failed to pay a total of 1,400 workers the right amount, demonstrating that even large businesses struggle to keep up with employment law.  National Minimum Wage Rates increased on 1st October 2015.

Nearly 70% of the named and shamed companies failed to pay just one employee the correct Minimum Wage rate, highlighting the lengths that HMRC is going to find even relatively minor breaches of the law. Small businesses shouldn’t therefore feel they are immune from the checks simply because of their size.

The new National Minimum Wage rates are easily accessible online, but does the lack of awareness mean that the government is not doing enough to highlight to employers when new rates come into effect? If so, this does not bode well for the new National Living Wage coming into effect next April.

For small business, the financial and reputational penalties associated with failing to pay the right wage rate would be crippling, but many find keeping up with employment law difficult, either due to lack of time or the seemingly prohibitive costs of taking on an HR service.

So, for Living Wage Week, here’s a simple guide to exactly what businesses need to know:

 

The National Minimum Wage changes each October:

The rate increases each year to take into account inflation and other factors, this year increasing from £6.50 to £6.70 for over 21 year olds for example. The full list of rates for various age groups this year are as follows:
• Adult rate (21 years old and over) – £6.70 per hour
• 18 to 20-year olds – £5.30 per hour
• 16 to 17-year olds – £3.87 per hour
• Apprentice rate – £3.30 per hour

 

Failing to pay the right amount can mean a hefty fine:

This currently stands at up to £20,000, and 100% of unpaid wages for every employee affected too.

 

Businesses need to start planning for the National Living Wage* now:

The new rate, which comes into force in April 2016 will be £7.20 for over 25 year olds. Employers now have less than 6 months to start financial planning for this increase in wages; something many companies across the UK have expressed concerns about.

We suggest a three step approach, before considering raising prices:

1 – Assess your staff payroll

For those that haven’t yet begun any serious thinking about how the National Living Wage might affect their business, what should small businesses take into account?

Perhaps most importantly, how many of your low earning staff are actually over 25? Of those, how many are paid under the NLW’s required £7.20/hour? What, therefore, would the net increase be to your business? All these questions form the vital first step in assessing the new Living Wage’s impact on your business.

2 – Improve staff performance to offset the additional costs from the Living Wage

Look at improving the productivity and performance of all employees. By carefully managing staff performance you can help to ensure the investment you put into your staff is fully returned. To achieve this, you should;

a) Have regular two way conversations to assess performance, and set future objectives and targets

b) Proactively manage lateness, absence etc. to ensure that poor attendance is minimised
Are you clear with staff about the responsibilities of their role and helping them to understand the consequences of poor performance?

c) Focus on what motivates your staff to get the best from them. Often a pay rise will only encourage a short term incentive to work faster and harder. If an employee was feeling demotivated and undervalued before the pay rise, chances are a few months down the line they will start to feel like this again. Instead, doing things such as ensuring that you listen to their career goals and really involving them in the business’ progress can help to engage and motivate staff – making them feel like (and become) a vital cog in your business’s machine!

When managing performance though, make sure that this isn’t just for those affected by the new Living Wage. You will need to be consistent with your management and treatment of all employees to avoid any potential claims of discrimination that could arise.

3 – Make sure you get the right skills

Make sure you have the right skill mix and working arrangements.

Is your recruitment strategy still ‘fit for purpose’? Sometimes stepping away from the more traditional working contracts (full-time, permanent) and exploring the following options can be a real help:

  • part-time working
  • job sharing
  • growing your own talent from within
  • bringing apprenticeship schemes on board
  • exploring placement or graduate schemes

These can all be a great way of keeping overheads down while maximising fresh talent.

However if you are in a position where you feel the current wage bill isn’t sustainable, then you may have to consider reductions in staff numbers, ensuring that you follow proper redundancy processes whilst exploring all avenues. If this is not possible, and if you’ve exhausted all the other avenues above, now you might want to think about raising prices.

 

Failing to keep up to date with employment law isn’t an option:

Employers across the UK that do not keep up with employment law can incur serious penalties. Ignorance is never a good enough defence for HMRC, so finding an affordable way to keep ahead of changes to employment law is increasingly important.

The businesses named as part of HMRC’s regular naming and shaming process will now have to pay large fines, as well as delivering the unpaid wages they have missed. Despite the advice that the government has given to the hairdressing sector, if employers are already struggling to keep up with a regular annual change, however, the addition of a new rate change in the middle of the year could cause unwarranted confusion and unnecessary penalties for employers that have been ill-informed by the authorities.

With 2016 fast approaching, time will tell whether smaller employers in the UK make a new year’s resolution to ensure that they are up to date with employment law.

 

Please note: The National Living Wage rate set by the government next April is not to be confused with the Living Wage rate set out by the Living Wage Foundation who run Living Wage Week. The Foundation’s is a voluntary wage level, not law, which has recently risen to £8.25 per hour outside London, and £9.40 per hour within London. 
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