Employers are braced for another shake up to their payrolls, as the chancellor announced an increase to the National Living Wage as part of today’s Autumn Statement.
The rate of the National Living Wage – currently £7.20 per hour – is set to change to £7.50 per hour by April 2017.
Research has shown that labour costs are already the primary expense for the small UK firms, and the demands of the National Living Wage increase could create a further headache for business owners struggling to maintain a profit margin.
John Harding, employment tax partner at PwC, offered a partial welcome for the increase in the National Living Wage, pointing out the incoming strain on small business owners already coming to terms with other policies.
“This is positive news for working families, but the additional strain on ‘EJams’ – employers just about managing – should not be underestimated.”
This comes at the same time employers are facing a triple whammy of additional costs from the Apprenticeship Levy, holiday pay changes and pension auto-enrolment increases.
The actual cost will vary across industries, with retailers, facilities management, care homes and the hospitality industry especially impacted,” Harding said in a statement.
Questions will be asked of Philip Hammond has to how Britain will meet former chancellor George Osborne’s target of £9.05 per hour by 2020 – requiring an average pay increase of 50p per year – without damaging the profitability of small businesses.
The chancellor also announced the raising of the tax-free personal allowance, offering further support for the lowest-paid workers in Britain.
The shift in the threshold – currently at £11,000 – means that by 2020, only people earning £12,500 and over will be required to pay income tax on their earnings. The target will be met by a threshold increase of £5,000 each year.
According to Chas Roy-Chowdhury, head of tax at ACCA, Hammond fell short of providing substantial support for the low paid workers by avoiding the “immediate implementation” of the £12,500 threshold.
Sign up to our newsletter to get the latest from Business Advice.