The Chancellor of the Exchequer has committed to a rise in the National Living Wage (NLW) in 2024.
Based on the Low Pay Commission’s (LPC) projection, this would mean a new NLW of between £10.90 and £11.43.
There has also been talk of reducing the minimum age for the NLW to 21, meaning that younger staff members in your business are also legally entitled to earn over £11 per hour.
This could have significant implications for many businesses, not least of which on their payroll responsibilities and financial bottom line.
How will it affect your business’s finances?
An increase in wages is always associated with an increase in expenses. Your labour costs are likely to go up if you are currently employing people with a minimum wage salary or individuals who are over the age of 21 but earning under the NLW.
With higher wages to be considered, your cash flow is also likely to be adversely affected by an increased outflow.
In the immediate term, your liquidity could decrease, and you could find that you have less cash to invest in the business itself.
How will it affect your payroll responsibilities?
The most direct impact that higher wages will have on payroll is the actual adjustment that your business needs to make in the weeks preceding and post-implementation of the new NLW.
Failing to correctly implement the new changes to wage slips could result in non-compliance and regulatory consequences like fines and penalties.
An increase in wages may also push some employees into a higher tax bracket or change their National Insurance contributions, requiring complicated calculations and adjustments in payroll.
Internal and external reporting mechanisms might need to be updated to reflect wage changes, including reports to HM Revenue & Customs (HMRC). Again, failure to comply with these changes, even accidentally, could put your business at serious risk of non-compliance.
How can an accountant help?
With the latest data and software, a qualified accountant is perfectly positioned to manage the changes to NLW.
They can ensure that the transition is seamless, instantly configuring your payroll to fall in line with the latest regulatory guidelines and making sure your business remains compliant with new Government rules.
In addition, an expert accountant can help you manage the additional financial costs associated with higher wages and prevent significant impacts on your business.
We can help your business to see potential NLW increases. Please get in touch to find out more.
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