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minimum vs living wage

Are you ready from the move from a national to a living wage?

The minimum wage and the living wage

Wednesday 16 September, 2015

Once again the national wage is set to increase in October bringing a smile to employee’s faces and a look of worry on employer’s.

However some of the increases can only be described as a stepping stone to further increases in April 2016 when the living wage is introduced.

The increase in wages are currently split into four groups: apprentices, under 18s, 18-20 year-olds and 21 and over. The increase that comes into affect on October 1 will see an hourly increase of 57p (£3.30) for apprentices and a small increase of 8p (£3.87) for under 18s. An increase of 17p (£5.30) comes into affect for 18-20 year-olds and 21 year-olds and over will receive a raise of 20p an hour (£6.50).  

Although this is good news for employees, the increases will yet again present employers with the annual headache of analysing the affordability of team members. Possible solutions to this could include investment in technology to minimise staffing requirements, or the recruitment of younger employees and apprentices. Whatever course of action employers embark upon, it is unlikely that many will allow the increased operating costs to eat into their margins and as a consequence that could result in a cost being passed on to the consumer.

However the wage increases will not stop here, as the chancellor announced in the Budget the introduction of a fifth tier the living wage. As of April 2016 the new wage which is set at £7.20 will apply to 25 year-olds and above. It is intended that by 2020 the wage will have risen to in excess of £9 an hour.

An employee working 29 hours a week on the living wage will earn an annual salary of less than the personal tax allowance of £11,000 and as a result they will not pay any tax on their income.

If you would like to discuss the implications of the salary increases in your business, please feel free to speak to a member of the team on 01442 828006 or email info@taxmaters.tax