While the government often makes promises it doesn’t keep, one thing we can count on is the upcoming increase in the National Minimum Wage (NMW) and National Living Wage (NLW) in April.
But what does it mean for agencies, and contractors who are working with umbrella companies? Read on to find out more…
The NMW is applicable to employees under 22 years of age, with bands for different age groups, and the NLW wage is the minimum hourly rate for those over 23.
Most of the bands are going up by 9.7%, with the 21-22 year old rate of NMW going up by 10.9%. For those over 23, the NLW will be £10.42 from 1st April 2023.
“The rates announced include the largest increase to the NLW since its introduction in 2016 and will provide a much-needed pay increase to millions of low-paid workers across the UK,” said Brian Sanderson, Chair of the Low Pay Commission (LPC).
Because the NLW is a legal requirement, minimum hourly assignment rates for new and existing contractors will have to increase to ensure that taxable salaries do not fall below the National Living Wage.
This increase will put extra pressure on employers, who are already facing rising costs in every area, so it is crucial to get prepared early.
For end hirers and agencies who are already working with contractors through umbrella companies, ask your umbrella provider how this will affect assignment rates so that you can budget accordingly.
Don’t forget though, working with a compliant umbrella company means that your payroll is well managed by experienced payroll specialists, and your workers are paid correctly and on time, every time.
Contractors on the current umbrella minimum will have their rate uplifted by their agency. Anyone already above the new minimum will find that their bonus payable or the amount of income that is claimable expenses against is reduced. And don’t forget, along with the rate rise, the amount accrued for holiday pay also increases (holiday pay is 12.07% of NMW and comes from workers pay, so when NMW goes up so does the holiday amount.)
To summarise, for our contractors, the changes will only affect:
Your rate of pay should be clearly laid out in the Key Information Document (KID) provided at the beginning of your assignment, which will also stipulate your terms of working and other important information. If you are on an existing assignment, you should be provided with a new KID upon the increase.
If you have any questions at all about how the new rates will affect you, do get in touch.
Working with a compliant umbrella company can help protect contractors and provide the security of continuous employment during changing assignments. But as the industry is unregulated, HMRC have identified it as an area which attracts tax avoidance schemes.
Your umbrella company, as your employer, is responsible for ensuring that the correct rate of National Insurance and Income Tax are applied to your take home pay. But non-compliant umbrellas are known to offer higher rates of pay, which are only possible through income tax avoidance. This can leave contractors with a high tax bill and other possible repercussions.
Despite HMRC’s recent efforts to crack down on tax avoidance schemes, with the increase in NLW and NMW we are expecting a new wave of non-compliant companies, as they exploit the changes as a marketing opportunity to offer even higher rates of pay.
Compliant umbrella companies like JMK Group UK are accredited with FCSA and are entirely transparent about what to expect about deductions from your final pay. They will be well established and usually registered in the UK. Working with a compliant umbrella can give you the security and confidence of working with an ongoing employer who supports you in your career.
If you are concerned about how the increased NLW and NMW might affect you, we at JMK Group UK are here to help. Talk to us today about any of your concerns, we’re ready for your call!
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.