One of the more radical announcements by the Chancellor on 8 July was a significant reduction in the amount the government plans to spend on tax credits and other State benefits.
More importantly for employers Mr Osborne also announced that there would a new national living wage to be paid by employers, rising to £9 an hour by 2020.
The current rate of national minimum wage for people aged 21 is £6.50 per hour.
This will increase to £6.70 per hour from 1 October 2015.
The new national living wage will apply to people over 25, the national minimum wage continues for people under 25.
The national living wage rate is set at £7.20 an hour from 1 April 2016.
It is intended to be £9 an hour from 1 April 2020. The Low Pay Commission will decide how the target is reached.
Someone working 35 hours a week on the national minimum wage currently earns £11,830 a year from 6 April 2020 they will earn £16,380 a year. In addition the increase in employers national insurance costs based on current rates is £628.
For an employer this is a 43.7% increase in wages costs over 5 years if you are employing people at the national minimum wage. In addition you also need to factor in the extra pension costs due to auto–enrolment.
Do you need to review your business costs to reflect this change? Do you need to increase your prices or increase productivity?
Please let us know if you would like help to review your profitability.