How changes to minimum wage and IR35 could affect your business

How changes to minimum wage and IR35 could affect your business

Government changes to the minimum wage and to how off-payroll workers are paid (IR35) are due to come into force shortly. Here’s a breakdown of the changes and what they mean for your business.

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Minimum wage to rise

From April 1, 2021, millions of low paid workers will receive a pay rise as the minimum wage increases for all age groups, in line with recommendations from the Low Pay Commission.

The move, announced by the Chancellor in November’s Spending Review, makes the national living wage rate for those aged 23 or over £8.91 per hour, up 2.2% from the current rate of £8.72.

Workers aged 21 or 22 will receive £8.36 per hour (up 2.2%), those aged 18-20 will get £6.56 (up 1.7%), 16-17-year-olds will be paid £4.62 (up 1.5%) while the minimum hourly rate for apprentices rises 3.6% to £4.30 an hour.

For the first time, the national living wage will be applicable to those aged 23 or over; previously, it only applied to the over 25s.

The changes have been roundly welcomed and will benefit around two million workers in the UK, many of whom have been hit especially hard by the pandemic.


How will the minimum wage increase affect business?

Recent HR news articles[1] indicate that the effect on the UK labour market will be minimal. When the rates increased in 2019, the effect was largely positive, reducing pay inequality and improving standards of living for low paid workers.

However, that was before the pandemic. Figures[2] indicate that small businesses in the north and Scotland have been hit hardest by Covid-19, and the average SME losing around £11,000 during the first lockdown alone.

Despite that, the changes have been largely welcomed by the business community as a whole. According to the Low Pay Commission, the effect of an increased national living wage had a positive effect on business growth, productivity, employment and pricing.

Since 2000, the organisation has commissioned more than 30 research projects, none of which has found strong evidence that increasing the minimum wage has led to falling employment.

Brands that pride themselves on their wellbeing credentials will be keen to shout about increasing employee wages; however, firms that are struggling will need to concentrate on achieving the basic rise.

It’s worth noting that large organisations that fail to pay staff the minimum rates can expect to be named and shamed. This year, the government investigated claims that more than 100 companies were failing to pay workers the minimum rate, to a collective tune of more than £6m. These included high street names such as Tesco, Pizza Hut and Superdrug as well as Scottish football club St Johnstone.


What is IR35 and what does it mean for my business?

Changes to the rules on how off-payroll workers such as contractors are paid are also due to come into force in April 2021.

The off-payroll working rules – IR35 – apply to contractors or intermediaries providing services to a client. From April 6th, all medium or large private sector organisations, including charities, will be responsible for deciding a worker’s employment status. If off-payroll working rules apply, payment may be subject to tax.

This represents a transfer of responsibility from contractors themselves to their clients, provided they have a turnover in excess of £10m or 50 or more employees. This brings the private sector into line with the public sector, where changes were introduced in 2017.

The rules were due to change a year ago but the move was delayed because of the pandemic. Fortunately, during that time, significant improvements have been made to the Government’s CEST (check employment status for tax) tool that makes the process more straightforward.

It’s important to speak to an HR consultant if you are unsure about how either the changes to minimum wage or to IR35 will affect your business. Contact our expert team here: