The National Minimum Wage (NMW) and the National Living Wage (NLW) are both set to increase by a record percentage on 1st April 2023.
Whilst this increase will come as welcome news to many employees across the UK who are feeling the pressure of the cost-of-living crisis, it may present a challenge for some SMEs who are already encountering severe cost pressures.
How much are the Minimum and Living wage rates increasing?
The government will increase the National Living Wage (for workers aged 23 years and over) by 9.7% to £10.42. This 92 pence increase is the largest ever cash increase to the NLW. Changes to the other National Minimum Wage rates are shown below.
What is the difference between the National Minimum Wage and the National Living Wage?
The National Minimum Wage is the minimum amount of pay that an employer is legally required to provide to an employee, under the age of 23, for their work if they fall withing one of the following categories:
- Full-time employee
- Part-time employee
- Casual employee
- Agency employee
- Apprentice (in some instances)
Employers must pay employees aged 23 and over at least the National Living Wage. These amounts are constantly under review by the UK government, who adjust it each year in line with the cost of living.
The national living wage was extended to workers aged 23 or over from 1 April 2021 and the Government has said that it is committed to extending it to workers aged 21 and over by 2024.
How might this affect my business?
Whilst the direct increase in National Minimum Wage costs for many businesses will impact their bottom-line profitability at a time when these margins are already being squeezed. There are some benefits to small businesses:
An increase in employee morale, work ethic and productivity
According to studies by leading economists, employee morale and work ethic increase when employees believe they are being paid a fairer wage. It has also been found that higher wages result in better physical and mental health as well as reduced ‘decision fatigue’.
This leads to an increase in productivity, helping businesses to make a greater return on their investment in higher staff wages. A Report to the Low Pay Commission found that 24-26% of firms said they found increased productivity following rises in the minimum wage.
It has also been found that raising the minimum wage reduces absenteeism. When employees earn higher wages, they tend to be absent from work less, leading to increases in business productivity.
Higher wages also reduce employee turnover, meaning less money needs to be spent on recruiting and training costs.
If you would like advice on this matter then please contact hr inspire’s expert HR team – Hertfordshire’s leading HR consultancy which can bring your business the benefits, protection and experience of an entire HR department.