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How to prepare for the National Minimum Wage Increase

In November it was announced that the minimum wage would increase in 2023. And while this will come as a relief to many contractors who are struggling through the cost-of-living crisis, for business owners and end clients it will require some planning. 

In this article, we look at what the increase will mean for contractors, agencies, and umbrellas.

What is the difference between the National Minimum Wage and the National Living Wage?

The National Minimum Wage (NMW) is the minimum pay per hour entitled by almost all workers in the UK. People of school leaving age and above are required by law to be paid the NMW.

The National Living Wage (NLW) is higher than the NMW, and workers over the age of 23 are entitled to this. 

There are several wage rates brackets for different groups of people, Apprentices, age 16-17, age 18-20, age 21-22, and over 23 (NLW). There is also an Accommodation Offset Rate which is relevant for people whose accommodation is included as part of their employment. 

On 17th November 2022, the government formally announced an increase to the National Living Wage (NLW) from April 2023, this includes shifting all rates of pay to provide people with more security during the cost-of-living crisis.

All rates will increase from between 4.6% for the accommodation offset rate, to the highest increase of 10.9% for the 21–22-year-old rate. The National Living Wage will increase by 9.7% to £10.42.

What does the wage increase mean for contractors?

Contractors will see an increase in their wages. Your agency or umbrella should inform you of what is happening and how it will increase your pay. Your gross pay, listed on your pay slip, must be at least at the National Minimum Wage rate. If you haven’t had communication from your agency or umbrella, ask them for the information you need.

Also note that the increase to pay might increase your income tax and NIC contributions. If you need to know more about this, talk to your employer.

 

What does the wage increase mean for end-hirers?

The National Wage increase will be in effect from April 2023. This means that assignment rates which are lower than the new minimum wage after that date will be adjusted to account for the increase.

The new minimum wage is a legal requirement, and failure to comply could result in a financial penalty and prosecution.

To absorb the increase in costs, employers might look to reduce their overall business expenses, increase their own prices, or negotiate a reduction in hours with employees. By considering your options now, you will be better prepared for the increase in April.

What does the wage increase mean for agencies?

To meet the new NMW, agencies should be negotiating assignment rate uplifts with clients now to ensure that contractors are paid correctly. 

This will help prevent any surprises in April which could affect ongoing contracts between agencies and end hirers.

How will the NMW increase affect the workforce?

The cost-of-living crisis has been well reported, with many people on the lowest wage struggling to make ends meet. The increase will no doubt be welcomed by those earning the NMW, as it will mean a significant impact on their livelihoods.

Employers on the other hand, might be apprehensive about the change, and the impact it will have on their bottom line. But it is worth noting that the benefits of increased pay on productivity and engagement can be huge. With improved staff turnover and retention, and lower absenteeism, companies may well find that the improvements in the financial wellbeing of workers has a positive effect on their financial outcomes.

As employment specialists, JMK offers several payroll models, including PEO and umbrella. Talk to us today about how the increase in NMW will affect you and your contractors.

HOW JMK CAN HELP YOU

Since 2002, JMK have been compliantly consolidating back-office, accountancy and payroll functions. 

We have evolved to provide a range of expert services; such as Funding, becoming a leading provider to the contracting industry.

We know every agency is different in some shape or form, even if only by a little, but important bit. Combining our knowledge and experience of multiple sectors enables JMK to support you all from recruiters and payroll, through to finance, compliance and management.

With JMK as your trusted partner, even the smallest team can process the largest payroll, regardless of payroll type.

Have a look at the wide range of services our Funding can provide to you and your business, it is far more than just payroll and finance.

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