National Living Wage

In the Autumn Statement last week (23/11/16) the Chancellor announced that the National Living Wage will increase from £7.20 to £7.50 from April 2017.  At the same time, the personal allowance will increase from £11,000 to £11,500. 

So what does this mean?

Currently an employee working 35 hours a week earns £13,104 a year and has £1,006 per month in their pocket (after tax & NI), from 17/18 this will increase to £13,793 a year or £1,046 per month in their pocket - an increase of £40 per month.

For the employer, the cost of employment will have increased by £52 per month (excluding pension contributions).

HMRC will see an additional £12 per month from employment taxes in their coffers. 

Who pays for this?

Businesses will need to find the additional money to pay their employees, this either means less profits if they absorb the cost (and less corporation tax being paid) or the cost is passed through to the consumer.  

It has been reported on the BBC today that the Low Pay Commission has:

Found 'no clear evidence' in changes in employment or hours since the higher minimum wage was introduced in April.

 you can read this article here.

But, what about social enterprises? 

The same report, then goes on to say:

The higher National Living Wage could "present challenges" for the social care sector, with many providers facing losses.

A social enterprise will not see an increase in income as the funds they receive either do not rise or do not rise in line with salary costs etc.  They also tend to be not for profit organisations which means that every last penny is carefully controlled, monitored and spent. 

So, for these organisations there is a real risk of redundancies.  For example, a social enterprise that employees 30 people who earn the NLW will see an increase in it's wage cost of £1,560 a month or £18,270 a year .. this is the cost of employing 1.36 people .. hence the risk of redundancy.

What is the solution?

I have no idea - I'm an accountant, not a politician, but don't just read the headline figures .. look into the stories and meaning behind them.

 

Rachael Savage