The national living wage saw its largest ever increase this year, rising to £9.50 an hour as of 1 April 2022.
This is a major boost for employees, amounting to a 6.6% increase in total. But for employers, it could mean significant additional costs.
To make sure your business is prepared to handle the change in contributions, it’s important to plan out exactly how your costs will change, and forecast any knock-on effects this might have.
What is the national living wage in 2022?
The national living wage is the mandatory minimum rate at which employers must pay staff over the age of 23.
All employers are required to meet this minimum.
Different rates apply for staff under the age of 23, and a separate apprenticeship rate applies for apprentices under the age of 19 or in the first year of their apprenticeship.
All of these rates changed this April, as shown in the table below:
|Rate||Previous rate (2021/22)||Current rate (2022/23)|
|National living wage (for staff aged 23+)||£8.91||£9.50|
|21 to 22 year old rate||£8.36||£9.18|
|18 to 20 year old rate||£6.56||£6.83|
|16 to 17 year old rate||£4.30||£4.81|
Calculating the minimum wage
When you’re working out the wage you pay employees to calculate minimum wage rates, you should take into account:
- income tax and National Insurance contributions (NICs)
- wage advances or loans, and repayment of these
- repayment of overpaid wages
- things the employee paid for that are not needed for the job
- accommodation you provide above the accommodation offset rate
- penalty charges for a worker’s misconduct.
You shouldn’t include:
- payments for your own use or benefit, for example if you’ve paid for travel to work
- things the worker bought as a requirement of the job such as tools, uniform, and safety equipment, that you haven’t refunded them for
- tips, service charges and cover charges
- extra pay for working unsocial hours on a shift.
Besides wages, there are a few other things you need to be aware of when running payroll for your staff.
You’ll need to keep a record of all other types of pay, including statutory payments, expenses and benefits, tips, bonuses and more.
You’ll also need to make the correct deductions from your employees’ gross pay before reaching the figure they’ll receive.
This includes income tax over the personal allowance of £12,570, employee and employer NICs, student loan repayments, and any charitable donations your staff choose to make before tax.
Under auto-enrolment pension rules, you’re also required to enrol eligible staff who earn more than £10,000 a year into a workplace pension and make contributions to this as a percentage of their pay.
This contribution must total a minimum of 8% of the employee’s qualifying earnings, with the employer contributing at least 3%.
As your staff’s wages rise in line with national minimums, you’ll also need to factor in payments like this to your financial forecasts.
We can help you to understand your obligations as an employer, and the implications for your business’s finances, with specialist payroll advice.
Get in touch to find out more.