The UK’s Chancellor Jeremy Hunt announced an increase in the National Living Wage from £10.42 to £11.44 an hour in his Autumn Statement on November 22.

The increase, set to come into force in April 2024, signifies a substantial shift in operational costs for many businesses set against a backdrop of fluctuating inflation rates and shifting labour market dynamics.

Accountants thus find themselves at the forefront, playing a pivotal role in guiding clients through effective budgeting, astute financial planning, and strict adherence to wage regulations.

Budgeting for the new living wage

The substantial increase, which is expected to benefit over 2.7 million low-paid workers, represents a significant shift in the payroll expenses of businesses across various sectors​​.

Adele Clapp, Tax Director at Bishop Fleming, underscores the need for proactive budgeting: “Accountants need to help their clients understand the financial implications of the new living wage and make informed decisions about how to allocate resources accordingly” (Bishop Fleming, 2023). This involves a comprehensive analysis of the increased labour costs’ impact on overall business expenses and identifying opportunities for adjustments.

A survey by the Learning and Work Institute reveals the anticipated responses of UK businesses to this wage increase: 21% plan to pass the cost onto customers through price increases, and 15% expect to hire fewer staff. Additionally, 10% of businesses plan to hire more workers on temporary or flexible contracts, another 10% plan to reduce or change staff benefits, 9% intend to increase staff training to enhance productivity, 6% may reduce or remove supervisor or managerial roles, and another 6% plan to reduce training budgets.

Effective workforce planning becomes crucial in managing these increased costs. This could include evaluating current staffing levels for efficiency, considering the use of part-time or temporary workers, and exploring automation or outsourcing as potential cost-saving measures.

The Autumn Statement also emphasizes the importance of compliance, with employers who fail to pay the appropriate minimum wage facing penalties and public naming by HMRC​​.

This legislative change not only affects payroll but also has broader implications for business strategy and financial health. Accountants must therefore play a pivotal role in helping businesses adapt to this new economic landscape, ensuring that their clients remain compliant while also finding innovative ways to manage increased labour costs.

Financial planning and compliance

The living wage increase, nearly 10%, is set to impact businesses across various sectors, with the hospitality industry being particularly affected due to its high proportion of lower-paid workers. In response, businesses are adopting diverse strategies to manage the increase in their wage bills.

To offset the higher wage costs, 23% of employers have focused on improving efficiency or raising productivity. This includes measures such as improving staff morale and motivation (33%), requiring staff to take on additional tasks (32%), and enhancing business practices like quality control and supply-chain management (28%)​​.

Accountants can play a pivotal role by advising clients on investments in technology and process optimisation, ensuring that these changes not only comply with the new wage standards but also contribute to long-term business growth. Additionally, accountants have the opportunity to guide their clients in exploring government grants or tax incentives that could alleviate the financial burden.

Employers are taking proactive steps such as building compliance into payroll systems (39%), paying above the NMW rates (25%), and conducting annual audits of minimum wage compliance (23%)​​.

Accountants are vital in this process, offering their expertise in regular audits and advising on best practices for wage compliance. Their guidance can help businesses navigate the complexities of these regulations, particularly for SMEs that might lack resources or expertise.

A guiding light

Accountants, with their expertise in financial planning, budgeting, and regulatory compliance, are well-positioned to guide businesses through this transition. By providing insight into government grants, tax incentives, and efficient financial practices, accountants can turn these challenges into opportunities for growth and stability.

Their role in ensuring compliance and guiding strategic planning positions them as invaluable partners to businesses facing the new economic realities brought about by the living wage increase.