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national minimum wage increase October 2016

National Minimum Wage increases from 1st October 2016

As they do every year, the National Minimum Wage (NMW) rates will increase on 1st October 2016. If you run a business and employ staff, you need to be aware of the changes and introduce them in your first payroll period following the introduction.

The Government regularly name and shame employers paying less than the minimum wage. Worse still that the potential bad press for your business is the penalty for non-compliance – up to £20,000 per worker.

 

National Minimum Wage Rates from October 2016

From next month the new rates of NMW will be:

  • 21-24 year-olds – £6.95/hr (up from £6.70/hr)
  • 18-20 year-olds – £5.55/hr (up from £5.30/hr)
  • 16-17 year-olds – £4.00/hr (up from £3.87/hr)
  • Apprentices – £3.40/hr (up from £3.30/hr)

The recently introduced National Living Wage for workers aged 25 and over, remains at £7.20 per hour. The Low Pay Commission will be making a recommendation to Government in the Autumn on the rate which should apply from April 2017.

As well an increase in employees net pay, you’ll see an increase in your monthly PAYE bill. The overall cost increase to employ a full time worker aged between 21-24, will go up by around £590 extra per employee per year (£520 in gross wages and another £70 on Employers National Insurance Contributions).

 

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Minimum wage increase on 1st April will cost employers almost £1,200 extra per employee

From the 1st April, the National Minimum Wage for employees aged 25 or over increases from £6.70 per hour (the current rate for all employees aged 21 or over) to £7.20 per hour to fall in line with the Living Wage.

The government plans to increase this amount year on year to bring the minimum hourly rate for those over 25 to £9 per hour by 2020.

Whilst this is good news for low paid employees, the cost to smaller business will be significant – around £1,200 more per employee per year once National Insurance contributions and Auto-Enrolment pension contributions are added in. With what is effectively a new minimum wage bracket being introduced, the gap between the minimum wage for employees aged between 18 and 25 is now £1.90 per hour – almost £4,000 per year for a full time employee.

To this end, I wouldn’t be surprised to see a significant decrease in unemployment for people under 25, as employees try to manage their costs by hiring younger workers ahead of the more expensive, older ones.

To lessen the impact on employers, the government are increasing the Employment Allowance on 6th April from £2,000 to £3,000. So the first £3,000 of employers National Insurance incurred in the 2016/17 tax year doesn’t need to be paid over to HM Revenue & Customs. While this is welcome, it may mean very little to employers who have more than one employee going up to the new £7.20 rate.

It’s worth noting that none of the other National Minimum Wage rates are changing at this time. These are usually tinkered with on 1st October every year so don’t be surprised to hear more on this in Budget 2016 next Wednesday, 16th March.