What implications do statutory pay increases hold for SMEs?

Small and medium-sized enterprises (SMEs) must be aware of statutory pay rises which come into force every April. These businesses should ideally have planned ahead so that pay rises can be incorporated effectively into their business spending. However, this year, due to inflation, statutory pay rises are higher than normal, which is not great news for SMEs already under considerable pressure. Business owners must consider where these extra costs will be absorbed – either passed on to customers or impacting profit margins.

Here is a handy summary of the main statutory rates companies need to be aware of to help plan and budget for the imminent changes effective from April 1:

National living/minimum wage

The Low Pay Commission, which advises the government on rates, has set a target for the national living wage to be two-thirds of the median earnings for all workers aged 21 and over by 2024. However, due to Covid and inflationary pressures, rates have increased more than normal. This year, their recommendation was around 10%. 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

For businesses paying at or near the national living wage, it is important to be aware that processes such as clocking on/off or pay deductions can drag the effective rate below legal minimums. To avoid being sanctioned by HMRC, companies may want to consult with an expert to help review their employment practices and ensure they stay compliant.

Apprenticeship rates

Businesses also need to be aware of minimum wage rates for apprenticeships which start lower than the headline minimum wage rates. With government funding covering much of the training, apprenticeships can be a cost-effective way to bring new talent into a team. 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).

Experts can help advise on this option to businesses who need support and guidance.

Statutory maternity/paternity/adoption pay

Businesses are faced with similar statutory pay rises for maternity, paternity, adoption, and shared parental leave pay. In 2023, these will be paid at a rate of £172.48 per week or 90% of the employee’s weekly average earnings (whichever is lower) because of the effects of inflation.

Statutory sick pay

Statutory sick pay for qualifying employees becomes payable after four consecutive days of sickness absence. From April 6, the weekly rate is £109.40, which increased from £99.35 in April 2022.

Advice for SMEs

In the face of ongoing economic difficulties such as inflation, businesses must ensure that statutory pay rises are considered carefully. It is important for companies to seek professional advice on the implications of these pay rises and how they can continue to structure and motivate their workforce to retain staff. For SMEs, it is crucial to recognize the value of experience and expertise among the existing workforce to prepare for easier times. Good insurance is worth the investment to bring business owners peace of mind so that they can focus on navigating their ship through choppy waters.

Sue Tumelty, founder, and executive director of The HR Dept recommends that companies seek personal services over off-the-shelf solutions as advisers need to understand the business’s values and where it is heading.

Further reading on pay

For more information, consult our article on managing an employee’s pay rise request.