We’ve all heard the news by now; the Conservative government’s first budget since 1996 has brought with it the promise of a ‘Living Wage’ and much more. But what is this compulsory ‘Living Wage’, and what do small businesses need to know about the budget in general?
The new Living Wage
Simply put, the Living Wage will be a new national rate for all workers aged over 25, starting at £7.20 per hour next April and eventually rising to £9 by 2020. The aim is to give an estimated 2.5 million people – on average – £5,000 more over five years.
The Low Pay Commission is set to advise on any future changes to these rates, which should hopefully mean that it will change based on real data about the cost of living.
What is the new Living Wage’s impact?
This is where it gets interesting. A blanket £7.20 per hour might not in fact be a ‘Living Wage’ according to many. The Living Wage Foundation itself states that the UK rate should actually be £7.85, and this increases when you live in London to £9.15.
With no separate Living Wage for those living in London, it could be argued that this is a half-baked measure at best for employees. And when you discover that the Living Wage Foundation’s calculations take into account in-work support, the London rate would actually need to be £11.65 should these existing benefits be removed. Well above the government’s proposed rate.
And with more news that those small business owners who pay themselves a large amount in dividends will face an increased tax bill, small employers themselves could find themselves concerned about how they are going to pay for staff under the new rules this could well impact on how they think about the number of staff they take on.
In fact, Frank Nash of Blick Rothenberg estimates that employers who pay trainees the minimum wage will end up paying 4% more a year after inflation. John Allen of the Federation of Small Businesses has also warned that SMEs will find the new rates challenging. Furthermore, it has been estimated that by 2020 there will be as many as 60,000 fewer jobs as a result of the changes to the Living Wage rates.
So, overall, the Living Wage looks to be a stumbling block both for employees and employers. However, only time will tell whether the changes due next April will have the desired effect on the UK economy.
The rest of The Budget
It’s not all doom and gloom for small businesses in the budget.
First off, employers’ national insurance contributions are set to be cut by £3,000, the Employment Allowance rising from £3,000 to £3,000. A measure that is hoped to offset the impact of an increase in wage rates. Certainly a positive change for those considering taking on more staff.
Also, the government is set to relax Sunday trading laws. A plan that is aimed to help stores below 3,000 square feet in size to up their competition, by allowing them to remain open throughout the day. The lobby group Open Sundays has even estimated that this will bring in an estimated £30.3 bn over 20 years to the UK economy – no small figure!
However, there are potential concerns for small businesses on the HR side of things. You can’t simply change your employees’ contracts after all. Should you want to open your store all day on a Sunday, you will need to ensure that staff are happy to work those hours, and don’t forget to take into account any religious beliefs that restrict when a member of staff can work.
Obviously there are a fair amount of other proposed changes, that would be too much to outline here – but these are the key points for small business employers to consider as part of the 2015 Budget.
Should you have any questions, or if you are looking for HR support for small business, don’t hesitate to give us a call on 0333 444 0165.
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