Thorn Baker Group: UK Living Wage Set to Rise

With April 2024 not too far in the distant future, there's an important change on the horizon for both employers and employees in the UK. The living wage is set to increase, and this development is bound to have significant implications for businesses and workers across the country. In this blog, we delve into the details of this upcoming change, what it means for various stakeholders, and how to navigate the transition effectively.

Understanding the Living Wage

The living wage, often referred to as the "real living wage," is the minimum hourly wage that allows employees to meet basic living costs comfortably, including housing, food, and other essential expenses. From April, this rate is set to rise, reflecting changes in the cost of living and economic conditions. Unlike the National Minimum Wage, which is determined by the government, the living wage is independently calculated based on the cost of living. It aims to ensure that individuals can enjoy a decent standard of living and avoid poverty.

The Upcoming Increase

The National Living Wage will increase from £10.42 to £11.44 per hour, representing a rise of 9.8%. This substantial increase is worth up to £1,800 for a full-time worker. According to Chancellor of the Exchequer, Jeremy Hunt, this decision marks "the largest ever cash increase" in the National Living Wage. This annual adjustment takes into account changes in living costs and is designed to keep pace with inflation. The increase reflects the commitment to improving the well-being of workers and reducing income inequality.

Impact on Employees

For workers earning the current living wage, the increase will bring some welcome relief. It means a higher income, which can lead to an improved quality of life and financial security. Employees may find it easier to cover their basic expenses and have more disposable income for discretionary spending. Individuals with low incomes are especially susceptible to the impact of escalating prices on essential goods and services. This financial pressure, particularly during a cost of living crisis, can result in elevated stress levels, a diminished quality of life, and challenges in meeting basic needs. Therefore, this proposed increase is likely to be greatly welcomed by many.

Implications for Employers

For our recruitment teams at Thorn Baker, it’s crucial we stay updated on the new wage rates so we can advise clients accordingly. Understanding the local variations in living costs can help tailor salary recommendations to specific regions. Below are the key points to consider:

Budget Planning: Prepare for higher wage costs as a result of the living wage increase. This may require adjustments to budget and financial forecasts.
Employee Satisfaction: Higher wages can lead to increased job satisfaction and morale among workforces. Happier employees often translate to better productivity and customer service.
Recruitment and Retention: A competitive wage can make your company more attractive to potential employees and improve retention rates. It's a great opportunity to showcase your commitment to fair pay.
Skill Shortages: Certain industries may experience skill shortages as the living wage rises. At Thorn Baker we understand the need to proactively identify these areas and provide advice on training and upskilling solutions to bridge the gaps. This not only helps businesses find qualified talent, but also contributes to addressing broader skills shortages in the job market.
Pension Costs: With a higher living wage, employees' pension contributions may also increase. Many pension schemes are based on a percentage of an employee's earnings, so as wages rise, so too will the amount contributed to the pension fund. This means employers may need to allocate more funds towards employee pensions, which can add to the overall labour cost.
Employers National Insurance (NI) Costs: Employers in the UK are required to pay National Insurance contributions on their employees' earnings. As wages go up, so do these contributions. Higher living wages mean increased Employers NI costs, which can impact a company's bottom line.

National Insurance Rate Cut

In addition to the living wage increase, there's another important development to note. The main employee National Insurance rate will be cut from 12% to 10%, effective from 6 January. This change will provide immediate relief to employees by reducing their National Insurance contributions. The Chancellor of the Exchequer emphasised the urgency of this measure, stating, "I would normally bring in a measure like this for the start of the new tax year in April, but instead tomorrow I’m introducing urgent legislation to bring it in from 6 January, so that people can see the benefit in their payslips at the start of the new year."

Preparing for the Change - To navigate these transitions smoothly, employers need to consider the following steps:

Review your current wage structure and identify employees who will be affected by the living wage increase and the National Insurance rate cut.
Update your payroll systems to ensure compliance with the new living wage rates and National Insurance contributions.
Communicate the changes to your employees, emphasising the positive impact on their finances.

The imminent rise in the living wage and the forthcoming National Insurance rate reduction stand as substantial steps towards enhancing the financial stability of UK workers. These measures come at a pivotal moment when frustration and negativity have loomed over the country for some time. A thoughtfully executed increase in the cost of living will hopefully renew optimism and promote some hope back into the country. Furthermore, it serves as a demonstration of the government's commitment to actively address the prevailing challenges faced by many.

If you’d like to discuss further how these changes will apply to your current or future supply of temporary workers you can contact your local specialist recruitment team here