Important Pay Information for 2016

Many of us who run a business come back to the office in January energised and rested hoping to continue to drive the business forward and build on the success of the previous year.

Whether you are looking at your targets for the end of the last quarter of this year or starting to put your strategy together for the next financial year, there are a few important points to note when it comes to your payroll costs. 

Changes to the National Minimum Wage rates are normally introduced in October each year. This year a compulsory National Living Wage is due to be introduced and will see the largest single increase for one group (50 pence per hour) since NMW was introduced in the UK.

In April the minimum hourly rate for all working people aged 25 and over, and will be set at £7.20 per hour. The current National Minimum Wage for those under the age of 25 will continue to apply.

The Low Pay Commission which currently recommends the level of the minimum wage will recommend any future rises to the National Living Wage rate.

The new National Living Wage is different from the Living Wage, which is an hourly rate of pay set independently by the Living Wage Foundation and is calculated according to the basic cost of living in the UK. The National Living Wage differs from the new Living Wage in several important ways. In fact, it might be more accurate to describe the new measure as an increased minimum wage, rather than a living wage.

The National Living Wage and the Living Wage – What’s the difference?

  • It’s compulsory – the existing Living Wage is a voluntary initiative promoted by a coalition of charities and businesses
  • It’s lower – £7.20 an hour initially, against the current Living Wage of £7.85 an hour
  • It’s nationwide and does not allow for regional differences– the Living Wage is set at £9.15 an hour in London
  • It’s only for people 25 or over – the National Minimum Wage will continue to apply to workers aged 18-24
  • It’s based (informally) on earnings – the Living Wage is calculated according to the cost of living

In April 2015, statutory sick pay (SSP) was increased from £87.55 to £88.45 per week. The Government has confirmed that SSP rates will not now increase in 2016, and the same will apply to:

  • Statutory maternity pay
  • Paternity pay
  • Adoption pay
  • Shared parental pay

Therefore, statutory rates will continue at the following current rates until at least April 2017:

  • SSP – £88.45 per week
  • SMP etc – £139.58 per week

The lower earnings limit (the minimum amount a worker must earn per week to qualify for SSP, SMP etc.) will remain at £112 per week

Because these rates are calculated in relation to the Consumer Price Index (CPI), we generally see an increase year-on-year, but with the CPI falling by 0.1% in the year to September 2015, rates will remain static in 2016.

Whilst it is unlikely that holding the 2015 rates for SSP, SMP and similar schemes will offset the increased payroll costs of the National Living Wage increase it will certainly help employers to manage the increase.