2016: An expensive year for employers

The government's new national minimum wage rules look to set back employers over £1 billion in the year to come. The new £7.20 minimum wage, agreed by George Osborne, will start as of April 2016.

This change looks to affect around 1.7 million UK workers, totalling over £650 million of wages to be paid by private employers.

This increase in the national minimum wage has also forced employers to raise wages for those working over the NMW to create wage differentials between employees. This helps to sustain the hierarchy and offer the opportunity for a pay rise or promotion. This increase has been called the “wage spillover” costs and will create a further expense for employers. Research by the RPC suggest that this cost will total around £230 million.

These new government changes are eligible for employees over the age of 25 in which their employer must pay them at least £7.20 per hour. George Osborne aims that this hourly rate will eventually increase to £9 by 2020. So the costs for private companies is likely to keep increasing.

As with an governmental change, there has been a fair share of criticism. Large UK employers argued that this increase could lead to their stores closing down. Alongside this, research from 1000 employers shows that 15% of companies would have to make redundancies to cope with the NMW increase (Resolution Foundation). Many economists have suggested that substantial increases, even if pursued over a few years, would need to be made incrementally and with a great deal of caution if they were to be effective.

Overall, the consensus from the majority of UK employers seems to be positive and they are supportive of the new wage changes. A recent study has shown that 93% of companies think this increase in national minimum wage is a “good idea”.

In addition to this the government has also been criticised for not planning far enough into the future when it comes to calculating the national minimum wage. They have only set plans for the first year and have not calculated what the yearly increases could amount to by 2020.