5 ways to take control of rising employment costs

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5 ways to take control of rising employment costs

Employment law has changed a fair bit in 2016, meaning that in some cases it can now cost you more than it would have done last year to take on a new employee. With this in mind, are you aware how much each employee costs your business?

We’ve written this blog to help you take control of the rising employment costs so you can use these employment law changes to to benefit your business.

1 – It’s time to plan for Minimum Wage demands

As of the 1st April 2016, all UK employers have to pay staff aged 25 and over at least £7.20 an hour.

If you run a small business that employs staff on Minimum Wage you may find this extra cost is something that makes a big difference.

And just to complicate matters, there is also another consideration known as the Living Wage. This is a much higher rate calculated by the Living Wage Foundation, which changes depending on if you’re in the capital or not. Currently it goes from £8.25 an hour for most of the UK to £9.40 an hour in London. You are not obliged to pay this rate, but, if your competitors do then you may have little option.

Do you have a plan if your staff make demands for the voluntary Living Wage?

If it is simply not feasible for your business, it’s a good idea to plan to have a message to explain why you won’t be paying this rate, to ensure employees aren’t left disenfranchised.

If you employ staff on the minimum wage we recommend that you do some of the following:

Work out the increased annual cost to your business by plugging the new wage rates into your budget.
If the increase proves too cost prohibitive for your business, consider how you can save money in other ways. Is there slush in your marketing or operations budget for example?
You may like to discuss it with your workforce, or at least explain what is going on. You may find that your staff come up with some ideas to help, like job sharing.
Consider changing staff hours. Staff being paid a little more could mean they become more productive, so this could work.
You may need to consider making some staff redundant. In which case you should familiarise yourself withthe proper redundancy procedure.

In any case it’s always best to consult with HR professionals, to ensure you don’t fall foul of employment law when making staff changes to your business.

You can find out more about the Living Wage here.

2 – Get ready for Auto Enrolment now

Auto Enrolment is not going away, all small businesses must enrol their staff over the course of 2016 and 2017.

But there’s more than just the admin of setting up a new workplace pension scheme to plan for; you’ll also need to contribute 1% of your employee’s pay too. And this is set to rise to 3% by April 2018.

If you don’t already pay into a staff pension scheme these additional costs could be significant. We suggest you take some of the following steps to help manage the cost to your business:

Calculate what 1% of your combined staff salaries is to understand the scale of your contributions, and plan for the staggered increases to 3% in April 2018.
Think about how long this would take to set up and administer the scheme – the Pensions Regulator estimates about 10 hours. However, every business is different so it’s never a simple thing to put a number on. Take a look at our checklist and consider how long it might take you to complete each element.
Work out how much will it cost you to set up a new scheme? If you hire a pensions provider to do this, there is usually a set up fee. However, NEST (the government’s pension scheme) is free.
Consider whether you need to take financial advice. This will certainly incur some fees for your business if you do.

Auto Enrolment is compulsory for all employers, and can take up to 6 months to set up, so it’s best to start planning for it as soon as possible.

REMEMBER: If you miss the deadline you could face fines of around £2500 per day, depending on the number of staff you have.

3 – Prepare for changes to commission and holiday pay calculations

Many recent court decisions have awarded holiday pay to staff who are paid on a commission basis, either wholly or partially. There hasn’t yet been a change to employment law with detailed guidelines of what to do in these circumstances, but given the recent press around these court rulings, it is looking likely that this will happen, therefore we’d recommend taking a look at what staff who work on commission get paid when they take holiday.

Your options:

If you pay commission to your staff but don’t pay any as part of holiday pay, you can do nothing today and wait for a final decision. You may run a risk of an employee taking you to court in the meantime, and claims can be backdated for 2 years.
If you pay staff more than 50% of their salary through commission you could try and mitigate the impact before this happens by paying some commission during holiday. It might be something like basing holiday pay on the commission earned during a 12 week average period.
If you have staff on commission at less than 50% it’s also worth keeping this issue in mind and in your budget as you may be required to pay holiday on commission in the future.

To reduce your risk, you could start including an average level of commission in holiday calculations for the 4 weeks of leave as explained here by Working Time Regulations. We recommend making the calculations and seeing how the increased cost affects your bottom line. If it’s too costly, it may mean you need to negotiate a different commission structure for your employees in the future.

Beware, it’s not just commission: When doing your calculations, it’s also worth taking into account any overtime or regular work done in anti-social hours. Another recent case awarded additional holiday pay for this type of work.

As always though, if you feel you need help with this, seek professional advice. You can find out how our consultants can help by getting in touch with us here.

4 – Consider the costs of termination in future

The government announced in their budget changes to termination payments. This affects what you pay employees when they leave; e.g. redundancy pay, payment in lieu or holiday pay.

These changes are a little way off, but worth factoring into your 3-year plan. From April 2018, employers will have to pay National Insurance Contributions on pay-offs above £30,000 when income tax is due.

So it is worth considering now what the costs of termination might be to your business. If you’re thinking about any major restructures to your business in the near future, it could be that – come April 2018 – paying off long-serving members of staff will be more costly for your company.

5 – Think; what is HR admin costing you?

It’s the bane of the small business owner – admin. And HR admin can feel like the most unnecessary burden of them all.

Luckily for small businesses there are many ways to offset the costs of HR admin.

Using the right HR software means that you can handle all the basics of employment in a much shorter space of time. There’s plenty of options out there for you to choose from, but it’s important to pick the one that works with small business in mind. As opposed to something heavy-handed and designed for much larger companies, with teams to handle their HR in-house.

Our HR software does just that, click here to find out more.

Employing people seems to cost more every year, but with these five tips you should be able to take control of what your staff cost you.

If you want to speak to someone about our affordable and flexible HR support service, then do please get in touch on 0333 014 3888 or get in touch.