What do statutory pay rises mean for your business?

As sure as April brings showers, it also brings statutory pay rises. All businesses need to be aware of the changes which are coming into force

What do statutory pay rises mean for your business?

As sure as April brings showers, it also brings statutory pay rises. All businesses need to be aware of the changes which are coming into force and, ideally, have planned ahead so that these pay rises can be incorporated effectively into your business spending.

This year, thanks to inflation, they jump higher than normal. For most businesses, already under severe pressure, consideration must be given to where these extra costs will be absorbed – passed on to customers, or by impacting your profit margins.

To help you consider the latest rises, effective from April 1st, here is a handy summary of the main statutory rates.

National living/minimum wage

As you will likely know there are several components to the national living wage. You may not know that the Low Pay Commission (which advises the Government on rates) has a target for the national living wage to be two-thirds of the median earnings for all workers aged 21 and over by 2024.

This aim had been disrupted by COVID and, even before inflationary pressures hit in 2022, they had advised raising rates last year more than normal to catch up (6.6 per cent). This year their recommendation was in the region of 10 per cent.

This means that from 1st April 2023, the new rates are:

  • Aged 23 and older (the national living wage) – £10.42 per hour
  • Aged 21-22 – £10.18 per hour
  • Aged 18-20 – £7.49 per hour
  • Aged under 18 (but above compulsory school leaving age) – £5.28 per hour

A vital point – especially for franchise owners. If you pay at or near the national living wage, it’s important to be aware that processes such as clocking on/off or pay deductions (like for a compulsory dress code for waiting staff) can drag the effective rate below legal minimums.

This catches out a lot of businesses and can lead to a lengthy investigation and sanctions from HMRC. I would suggest that it is worth consulting with an expert, so that they can help you review your employment practices to ensure you stay compliant.

Apprenticeship rates

There are also minimum wage rates for apprenticeships. These start significantly lower than the headline minimum wage rates. From 1st April these starting rates rose from £4.81 per hour to:

  • Apprentices aged under 19 – £5.28 per hour
  • First year apprentices aged 19 and over – £5.28 per hour
  • Aged 19 or over and have completed their first year – an applicable living/minimum wage for their age (see above).

With much of the training paid for by the government, apprenticeships are a cost-effective and interesting way to bring new talent into your team. It is important to remember that apprenticeships are not just the preserve of trades. We know several businesses in professional services sectors, such as accounting, who are actively recruiting youngsters out of college, embedding them into their workforce with the offer of training and rapid career development.

Statutory maternity/paternity/adoption pay

Businesses are faced with a similar story for statutory maternity pay as well as statutory paternity, adoption and shared parental leave pay. Of course, the first six weeks of maternity and adoption pay are calculated as a percentage of average weekly earnings. This stays at 90 per cent.

Thereafter, maternity, paternity, adoption and shared parental leave are all paid at a rate of £172.48 per week or 90 per cent of the employee’s weekly average earnings (whichever is lower). Last year in 2022 the rate was £156.66 per week.

Statutory sick pay

Statutory sick pay is the last of the main statutory rates that we will look at here. For qualifying employees it becomes payable after four consecutive days of sickness absence. From April 6th the weekly rate is £109.40. This compares to £99.35 in April 2022.

Advice for franchise businesses – owners and franchisees

With inflation still high and the cost of everyday staples such as food continuously going up, it’s a difficult time for employees as well as business owners. It’s important to ensure that these statutory price rises are considered carefully by franchisors and franchisees alike, so that staff are retained wherever possible for the good of all.

We would recommend seeking advice on the implications of these pay rises and also, crucially, how you can continue to structure and motivate your workforce. While the ongoing economic difficulties are of course a challenge, it’s important to recognise the value of the experience and expertise among by your existing workforce. It makes business sense to do all you can to retain this knowledge in preparation for easier times. Your workforce will thank you for it too, and will be more likely to remain loyal as a result.

Sue Tumelty
Sue Tumelty