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What are the pros and cons of the living wage budget and what does it mean for you?

October 21, 2015

What are the pros and cons of Mr Osbourn's budget and what does it mean for you?

The National Living Wage is being introduced because there are more people in the UK on low pay compared to other advanced economies.

The Telegraph state that; “Around one in five UK workers is low paid, compared to an average of only one in six among the other 33 Organisation for Economic Co-operation and Development (OECD) countries.”

What it means for you…..

Carrington Umbrella, like all umbrella companies, have to ensure that all their contractors are receiving their entitlement. So, how will Mr Osbourne’s budget affect our clients?

One important thing to remember is that the National Living wage will be introduced in stages between now and 2020. The first stage being in April 2016 when all employers must pay workers a minimum of £7.20 per hour for employees over 21 years of age. This compares favourably with the current £6.50 per hour for over 21 year olds.

However the National Living wage of £9 per hour, to be implemented in 2020, will only be given to those aged 25 years and over. It has been billed as a “premium” to be paid on top of the national minimum wage which will continue for those under 25.

The government justifies this difference by suggesting a lower wage for under 25’s will enable them to “secure work and gain experience”

Are there any downsides?

The Office of Budget Responsibility predict that the changes will result in the loss of 60,000 jobs. This means that companies such as Carrington Umbrella will work hard to ensure that none of their contractors fall into this category. Our reasonable rates are one way in which we will be able to implement this.

Mr Osbourne, however, predicts that his budget will create 1.1 million jobs overall and therefore outweigh any job losses. He has also stated that businesses will be helped to make changes to wages. He will reduce corporation tax and increase the new Employment Allowance to £3000 for small firms. He has said, “That means a firm will be able to employ four people full time on the new National Living Wage and pay no National Insurance at all.” The Low Pay Commission will now have to decide how the National Living Wage will reach the target of £9 by 2020.

So what are the pros?

Those currently on the National Minimum Wage will see an increase of 70p an hour based on the current rate. This calculates as 50p an hour when compared to the planned October 2015 increase.

Almost 3 million low wage workers will be given a direct boost by the changes, while approximately a further 3 million people could also see an increase in wages as a result.

The changes will mean that by 2020 a person, aged over 25 working 35 hours a week, will see their gross wages increase by around a third compared to 2015-16, or £5,200 in cash terms.

Carrington Umbrella will be able to ensure that all their contractors benefit from these changes, which were cheered by MPs when announced by the chancellor, as all our workers deserve to be fully rewarded.

Sue Patch

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