Is your restaurant ready for the proposed National Living Wage increase?
16/10/2023
The Chancellor of the Exchequer has recently announced an upcoming rise in the National Living Wage (NLW) for 2024 to “at least £11 per hour”.
Based on projections from the Low Pay Commission, the new NLW could range from £10.90 to £11.43 in order to meet the Government’s manifesto commitment that the NLW would reach two-thirds of median earnings by the time of the next General Election. The April 2024 increase will be the last rise before the next General Election.
Additionally, there’s the strong possibility of reducing the age eligibility for the NLW to 21 years old as this was another manifesto commitment.
As a hospitality business owner, here’s what you need to know:
The financial implications
Increased expenses: As a restaurant owner, labour costs are a significant part of your operational expenses. The new NLW could significantly push up these costs, especially if you employ a lot of minimum-wage workers. Bear in mind that for hospitality businesses tips and service charges cannot be used to pay the NLW, regardless of whether or not they are paid via a tronc system.
Cash flow impact: With increased labour costs, your outgoing cash flow will also rise, potentially affecting your liquidity and operational flexibility.
Investment decisions: Less available cash may mean postponing or reconsidering planned upgrades or expansions.
Payroll responsibilities in the hospitality sector
As soon as an increase to the National Living Wage comes into force you must:
Adjust wages: You will need to adjust wages for eligible employees by the set deadline. This is the start of the first pay period commencing on or after 1st April. If 1st April falls mid-pay period the change does not have to be implemented part way through that pay period. Failing to do so could lead to penalties, tarnishing your business reputation.
It’s vital to take into account that tips, additional pay for working unsociable hours, and allowable expenses do not contribute to someone’s wage. Get in touch with our team for guidance on how to accurately calculate your employees’ wages.
Ensure your HMRC reports are correct: Your reporting mechanisms, both internal and external, must be updated to reflect these wage changes when you file your reports with HM Revenue & Customs (HMRC).
Payroll system updates: Your payroll systems must be reconfigured to align with these new rates, which could necessitate system testing and validation.
How can WMT help?
With our specialist hospitality accountants on hand, we can help with:
Seamless transition: We can update your payroll system efficiently to meet the new NLW requirements.
Regulatory compliance: With expertise in HMRC reporting requirements, an accountant will ensure you remain fully compliant, avoiding penalties.
Strategic planning: By quantifying the financial impact in advance, an accountant can help you strategise how to absorb these additional costs without sacrificing profitability. This could include efficiency measures, cost-saving initiatives, or a revised pricing strategy.
Contact our specialist hospitality accountants today for support.
