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National Minimum Wage: Will a minimum wage of £7 per hour impact your business?

It is estimated that one sixth of British workers are paid the minimum wage. – Around 1.35 million people. Since its introduction in 1999, when the rate meant a person over 21 would be paid at least £3.60 per hour, the National Minimum Wage for that age range has increased to £6.31.

The Chancellor, George Osborne, has stated that he wants to see an above-inflation rise to take the NMW to £7 per hour when the Low Pay Commission meets next month. He believes the “economy can now afford” the increase as a recovering economy means employers are now in a position to spend more.

However John Allan, the Chairman of the Federation of Small Businesses, warned that the National Minimum Wage shouldn’t be increased above the rate of inflation as many firms are already working within very fine margins and are “struggling with rising costs in areas such as utilities and rates.”

Whilst a bid to increase the rate may be well intentioned, (it is argued that a rise to £7 per hour by 2015 would return the NMW to its pre-recession value, and improve the quality of life for Britain’s lowest paid workers.) a sudden change could actually have the opposite effect; causing further unemployment where businesses simply can’t afford to pay staff and have to reduce their workforce.

This discussion comes hot on the heels of the announcement that the maximum penalty levied on employers found to be paying less than the national minimum wage is due to be vastly increased.

As it stands, a guilty employer could be fined for 50% of the total value of pay owed to all employees who have been underpaid, with the fine capped at £5000. When the changes (expected to be implemented in February) take place, the penalties will be equal to 100% of monies owed and the limit of the fine will instead be £20,000.

The requirement of the employer to also pay the outstanding wages will not change.

To ensure your business is complying with the law, take a look at our FAQ’s on national minimum wage and other statutory payments by clicking here.

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