It’s hard enough looking after your business without your employees causing you grief too. There are some big changes coming your way very soon that will impact your wage costs. There are also new regulations relating to pensions that you must comply with from the 1st October this year.

New rates for minimum wages

As you know, the rules relating to the minimum wage change from the 1st October this year. The new rates will be £3.87 per hour for 16 to 17-year-olds, £5.30 per hour for 18 to 20-year-olds and £6.70 per hour for those who are 21 and over.

What is less well known is that the apprentice rate for 16 to 19-year-olds (and over 19’s who are in their first year of training) is now £3.30 per hour. Grants are available towards the cost of their wages, but to be eligible your employee has to be on a suitable course and may require paid leave to attend lectures as part of the grant conditions. All of this has to be factored into your budgeting (which we can help you with.)

National Living Wage from April 2016

From April 2016, a new tier to the National Minimum Wage starts: the new “National Living Wage” of £7.20 per hour becomes the effective minimum wage for those over 25 years old.

So what is the effect? Assuming that you employ someone over 25 on minimum wage for 40 hours per week then your annual cost will rise from £14,747 to £15,931 (both figures include Employers National Insurance contributions at the 2015/16 rates.) Naturally this will be an allowable expense for tax relief, so the net additional cost after basic rate tax and Class 4 NI will be £841.

At the moment, family members and company directors don’t have to fall under the minimum wage rules. So, depending on how your business is set up, we may be able to help you with some careful tax planning routes to make this more tax efficient.

Auto Enrolment for Pensions

“I’m in!” say happy employers and employees on the adverts but how happy or sad should you be?

Let us take the employee above, who is now earning £7.20 per hour and 40 hours per week, which equates to a gross wage of £14,976. They will be enrolled automatically as their gross salary is above the £10,000 per year threshold. They can choose to opt out but you, as the employer, must not influence their decision; the Pensions Regulator can fine you.

The pension contribution rates start at 1% from the employer, and 1% from the employee. This rises from 1st October 2017 to 2% from the employer and 3% for the employee. By the 1st October 2018, the rates increase to 3% from the employer and 5% from the employee.

But what will it cost you?

Deductions are not taken on the first band (currently £5,824). So up to 1st October 2017, the employer cost of the compulsory pension will be £92 per year. From 1st October 2017 it will be £184 per year. After 1st October 2018 it will be £276 per year. Hopefully, this won’t be as high as you had feared. The national press like to create bad news stories and conveniently exclude the nil rate band.

We can help you manage all changes in wages, payroll and the new pension rules

Pension contributions are usually paid monthly to the pension provider together with an electronically submitted return. Our payroll software produces these reports and allows us to upload the contribution schedule directly to the pension company on your behalf.

We operate payroll, including Pensions Auto Enrolment for clients from all of our offices across Cumbria and South West Scotland, so do get in touch with us if you would like to handle this for you. In addition, our financial services team can advise on suitable pension schemes if you find the choice too baffling.