Frequently Asked Questions

Impact of government policy on employee costs



Two issues which the UK Government wishes to address, are likely to have a significant impact on the labour costs for businesses in the near future. These issue are:

The low level of pension savings, particularly with respect to lower paid workers.

The increasing cost to the Treasury of tax credits paid to lower paid workers.

Changes to come

Pension Auto Enrolment will add 3% to the cost of labour for those businesses who currently do not provide a pension scheme to their employees. This of course assumes that employees will not opt out from auto enrolment.

The government has set the target of increasing the National Minimum Wage / Living Wage from £6.50 per hour in the summer of 2015 to £9.00 per hour by 2020. For a 40 hour week this represent an annual salary of just under £19,000!

Impact on businesses

Those industries / trades which will be impacted upon the most by these two changes, will be those employing a significant proportion of employees at minimum wages rates with no pension provision.

All businesses will feel the effects of these changes, due to knock on effect of their suppliers trying to pass on their increased costs by increasing prices.

However assuming that a company only has employees which are most seriously affected by the changes then labour costs will increase by a staggering 41%.

(This calculation is based on employees working a 40 hour week with their hourly rate increasing from £6.50 to £9.00 an hour and 3% employer pension contributions being paid on earnings above the NIC lower earnings limit.)

Clearly such significant increases in costs may make some owners question whether they should continue to trade.

Action Plan

We would be pleased to discuss this matter further with you in order to ascertain the impact on your business. To arrange a meeting telephone 0121 294 6670.

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