What do statutory pay rises mean for SMEs?

Sue Tumelty, founder of The HR Dept, explains upcoming statutory pay rises and what you should do as a small business owner

What do statutory pay rises mean for SMEs?

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 SMEs already under considerable pressure, this is not great news. Consideration must be given to where these extra costs will be absorbed – either passed on to customers or impacting your profit margins.

To help you plan and budget for the imminent rises, effective from April 1, 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 April 1, 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

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 April 1 these starting rates rise 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. It’s an enticing prospect for a young college or school leaver who is facing the prospect of student debt but has an alternative route into the workplace. You might also consider those with the maturity to consider the holistic practicalities of the next decade to be the kind of youngster you are keen to employ. Again, experts can help advise on this option.

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). 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 6 the weekly rate is £109.40. This compares to £99.35 in April 2022.

Advice for SMEs

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 company owners, 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 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.

What’s crucial from an adviser is in-depth understanding about you and your business: what its values are and where it is looking to go. That’s why we’d always advocate a personal service over an off-the-shelf solution.

You should also bear in mind the risk of tribunal and the resulting fines and legal fees. Good insurance is worth its weight in gold, if nothing else, to bring you peace of mind so that you can focus on navigating your ship through choppy waters.

Sue Tumelty is founder and executive director of The HR Dept.

Further reading on pay

How to manage an employee’s pay rise request

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Sue Tumelty

Sue Tumelty is founder and executive director of The HR Dept Ltd.