How to manage payroll changes from the Budget

The 2021 Autumn Budget included several announcements concerning payroll, from Statutory Sick Pay (SSP) to the Real Living Wage.

Alongside the annual increase to minimum wage, the Chancellor announced cuts to Universal Credit taper rates and further changes to Covid-related SSP.

In particular:

• April 2022: National Living Wage (NLW) for those over 23 will increase from £8.91 to £9.50.

• April 2022: National Minimum Wage (NMW) increases for those under 23:
  • From £8.36 to £9.18 per hour for those aged between 21-22.
  • From £6.56 to £6.83 per hour for those aged between 18-20.
  • From £4.62 to £4.81 per hour for under 18s.
  • From £4.30 to £4.81 per hour for apprentices.

• December 2021: Universal Credit taper rate – how much claimant’s credit is reduced for every pound earned – has been lowered from 63p to 55p.

• March 2022: the standard three-day waiting time before SSP kicks in will be reintroduced. Previously, waiting days had been suspended during the pandemic to ensure those off due to Covid-19 were entitled to sick pay from day one.

Elsewhere, the voluntary Real Living Wage, calculated by the Resolution Foundation and overseen by the Living Wage Commission has increased to £11.05 in London and £9.90 for the rest of the UK.

While the Real Living Wage isn’t mandatory, calculations reflect the rising cost of living. Currently, 9,000 Living Wage Employers pay their staff the Real Living Wage.

For businesses who have grappled with Covid-19-related uncertainty and market volatility, the incoming payroll challenges pose additional issues. While most would like to pay staff based on the Real Living Wage, many are still in recovery mode following a turbulent 20 months.

We spoke to AAT members to find out what payroll issues their clients are currently experiencing as well as their views on wage increases.

Real Living Wage should apply across the board – but businesses must first look at pricing structures

Andy Sullivan FMAAT, Director, Complete HQ

Although businesses we work with believe NMW/NLW increases are the right thing for their workforce, they are still on a path to recovery after the pandemic and are concerned about the impact this will have.

In terms of the Real Living Wage, (RLW) it’s something we as a business ensure we meet as an absolute minimum. Several of our clients also try to keep up with this ongoing cost, but it’s not always commercially viable.

The main challenge that we face is actually the lack of available talent. It means that larger accounting businesses tend to outbid smaller firms when it comes to salary levels in order to secure the best talent. However, we’re seeing more and more that salary level isn’t always a key factor in accepting a job offer. Instead, work environment, business culture, client types and management style are all major factors for candidates in their decision-making process.

Next steps: I’m of the belief that RLW should be rolled out across the board, but for this to be achieved, businesses need to look at their pricing structures to allow for income to be generated at the top end in order to flow down into payroll costs.

Verdict: Real Living Wage should be rolled out across the board, but businesses should look at pricing structures to ensure it’s commercially viable to do so.

It’s not all about pay – employers should take a holistic approach towards remuneration and reward

Amy Chapman, MAAT ATT ACA BFP, adviser, Old Mill

As a result of increasingly complex payrolls, there has never been more need for expert guidance in this area.

We have seen a number of businesses move their wages already in advance of any statutory changes in order to get ahead of the competition. This has worked for some but not for others. What has become clear, however, is that it isn’t solely about salary but what else an employer is offering, e.g. flexible working, career progression, ancillary benefits.

Ultimately, market forces (short supply of labour specifically will dictate where wages get to, especially in the context of well-documented inflationary pressure on energy and materials. Next year’s National Insurance hike and rising corporation tax will put further pressure on operations.

However, it is more than financial. Yes, you have to offer a competitive wage, but we believe you must foster an environment where people can have the career that they want. Gone are the days where it was all about the pay.

Next steps: Focus on the remuneration package as whole, including employee benefits and pensions, not just salary level.

Verdict: It’s not all about pay – employers should take a holistic view of remuneration.

We offer RLW to give us a competitive advantage in the marketplace

Andy Murray MAAT, AATQB, Financial Lead, Manna Pro UK

Manna Pro is an animal feed and supplement manufacturing company.

The manufacturing sector has been hit hard during the pandemic due to supply chain delays and increased freight costs. In our case, we’ve been hit with tremendous bills as we’re so reliant on freight providers and we’ve had to manage those extra costs.

Yet we’ve been extremely fortunate – we’ve taken on more staff during the pandemic and we’ve not had to furlough anyone, so our payroll has actually increased in terms of headcount.

Everyone has been working from home since last March and no one has been off sick, so there have been no issues with Statutory Sick Pay (SSP) either. Our payroll operations are very streamlined.

We already offer staff the Real Living Wage, and this is something we’ve always done. It’s important to offer this because it gives us a competitive advantage in the marketplace and helps attract and retain staff. On top of this, we offer a range of employee benefits, including paid parental leave, generous employer contribution pension scheme, private healthcare, income protection, life assurance and a generous holiday package.

Next steps: We are still hoping to offer ad-hoc performance-based pay increases in the near future and have those conversations with our staff.

Verdict: Offering RLW gives us a competitive advantage in the marketplace but it’s important to offer a holistic range of employee benefits, too.

Annie Makoff is a freelance journalist and editor.