Our Blog page banner

The National Living Wage: preparing your payroll


The National Living Wage: preparing your



Amid the many headline announcements of the Summer Budget 2015 was the creation of a mandatory national living wage (NLW).

From 1 April 2016, the current £6.70 national minimum wage (NMW) for over-25s will be replaced by an NLW of £7.20, which will rise to £9 by 2020.

Chancellor George Osborne argued that raising statutory wages is “an essential part of building the higher wage, lower welfare, lower tax society”.

However, many business groups responded negatively to the news.

Federation of Small Businesses national chairman John Allan warned that the NLW “will lead to fewer jobs being created, fewer hours for existing staff and, unfortunately in some cases, to job losses”.

Meanwhile John Cridland, director-general of the Confederation of British Industry, said that many businesses “will face real challenges in affording the NLW”.

Preparing for the living wage

In December 2015 a government survey revealed that many businesses were not fully prepared for the changes.

Just 45% of businesses had amended their payroll to account for employees aged 25 and over on 1 April 2016, while only 39% had discussed the changes with their staff.

While the survey wasn’t comprehensive (surveying only 1,000 business owners), these figures are nonetheless alarming.

The most important thing to take into account when preparing for the NLW is wage expenditure.

If your business currently pays less than the £7.20 living wage, it is imperative that you plan for the additional costs, which could be extensive depending on how many of your employees meet the NLW criteria.

It’s a good idea to put contingency measures in place, should the living wage severely threaten your margins.

Examples of this could be reducing overtime or rethinking your recruitment plans.

It is also important that you notify your employees of the wage increases in advance and communicate any changes you implement in response to the additional expenditure.

Get in touch

With less than a month to go before the NLW takes effect, it’s vital that you begin your preparations if you haven’t already done so.

Contact us at geoffk@knightandcompany.co.uk or call 01628 631 056 to discuss any matters relating to payroll.