The minimum wage rate in the UK is still a relatively modern concept.
It was first introduced back in 1998, with the aim to eradicate low-paid employment, tackle exploitation, and raise the overall living standards of the UK workforce. When the National Minimum Wage Act was passed in Parliament, the rate was £3.60 an hour for workers aged 22 and over, and £3 an hour for those aged between 18 and 21.
What are the new rates?
The new national minimum wage came into force on 1 April 2022, and the principal rate for workers aged over 22 now stands at £9.50 an increase of 6.6 per cent from the previous year.
Other increases down the age brackets include:
- National Minimum Wage for those aged 21 to 22: From £8.36 to £9.18
- National Minimum Wage for 18 to 20-year-olds: From £6.56 to £6.83
- National Minimum Wage for under-18s: From £4.62 to £4.81
- The Apprentice Rate: From £4.30 to £4.81
As an individual, this modest increase will not make a whole lot of difference to the cash in your pocket – particularly in view of the fact that inflation is heading towards double figures.
Putting pressure on businesses
However, for a business, particularly if your workforce employs a lot of younger people, the compounding effect of the increases will have a significant impact on your bottom line.
For an SME, the rise means that a full-time worker will receive an extra £1,074.
And don’t forget the additional annual national insurance contribution for each member of staff - SMEs are going to be shouldering a heavy tax burden in 2022.
But being forewarned is forearmed, and there are a number of practical steps you can take to mitigate the rises as much as possible while trying to maintain a valued, engaged workforce.
Communication with your workforce
Whatever steps you implement, make sure you maintain open channels of communication with your workforce. Chances are you are still reeling from the aftereffects of the pandemic, and a period of stagnation. The introduction of a new minimum wage rate in the UK may impede growth plans for the future, and you need to find a balancing act between protecting your workforce and planning for future growth.
Keeping them in the loop will ensure they feel valued and listened to so that if you need to implement cost-cutting measures, you have their buy-in to ensure compliance. This is a route that is always challenging, but it might offer short-term solutions on the way to regaining that long-term goal of growth.
Any changes are likely to impact HR and reward - review all corporate HR policies and procedures, and work with a trusted HR partner to ensure the best outcome.
Passing on those increases
The trouble with inflation is that it has to be passed on right through the line until it comes back to itself.
So, to cover the new UK minimum wage, you have to find additional resources or income. The sector that supplies this is your client base, who will also be facing the same problems. Although raising prices is an uncomfortable commercial decision, it is maybe a necessary one and one that your own clients will be considering in terms of raising their own prices to their own client base.
A good time to reassess internal systems
At the same time as trying to cover the increases through generating additional income, you may also want to use it as an opportunity to reassess some of your historical internal systems in a bid to cut any fat and unnecessary expenses. Areas you can examine include:
- Travel Expenses: is every journey necessary? Are you carrying too much-underutilised equipment and vehicles? Could you change systems around to maximise usage on a smaller amount of equipment?
- Office space: Could introducing a more hybrid approach to working mean you could cut down on expensive office space, thereby reducing rent, rates, and energy bills?
- And talking about energy bills – could more be done to reduce these bills? You could introduce a workforce-wide drive to make sure everything that is not in use is switched off at the mains.
- Performing a cost analysis on all areas of your business will highlight a myriad of areas that have probably grown fat through getting lost in the day-to-day operations of your business. Now’s the time to claw back those much-needed resources and redirect them into more productive areas.
This is probably not the first minimum wage increase you’ve been through, and it certainly won’t be the last. But with post covid challenges, double-digit inflation, and soaring energy costs, it will certainly be the most painful. Try not to panic and see it as an opportunity to reassess and get a grip back on those aspects of the business you may have let go of a bit in the past. If you need help and support, speak to the experts, who will help you navigate your way through the worst bits to ensure you come out stronger on the other side.
