How to prepare for the minimum wage increase on 1 April 2023
The Government announced in February that there will be an adult minimum wage increase (not to be confused with the median wage) of $1.50 per hour to $22.70 per hour on 1 April 2023. This is a 7.2% increase and is in line with the Consumer Price Index Inflation rate as at end of December 2022.
The Starting-Out and Training minimum wage rates will remain at 80% of the adult minimum wage, which means they’ll both go up to $18.16 per hour.
NB: All rates are before tax and any lawful deductions such as PAYE tax, student loan repayments, and child support.
Note that the minimum wage does not apply in some situations, including:
- Employees under 16 years of age.
- Where a Labour Inspector has issued a minimum wage exemption permit to an employee who has a disability that limits them carrying out the requirements of their work.
Checklist to ensure you’re ready for the minimum wage increase:
- If you have any employees currently on the minimum wage, communicate verbally with them (if you can) to tell them about the increase they will be getting and when.
- Follow up in writing by letter or email with a variation of employment that confirms the new wage rate.
- Check your payroll system and processes (which may be your payroll provider, accountant, lawyer, and HR or finance people) to make sure they are ready to implement the changes.
- If your system is manual or computer based, check and confirm that the settings will be adjusted in time for the minimum wage increase.
- If any of your employees are on Starting-Out and Training minimum wage rates, now would be a good time to review their records and note when they will be eligible to move onto the adult rate.
- If any employment agreements (EAs) are not current or you did not give one to your employees, now is an ideal time to discuss this in good faith with your employees. Update the EA with any terms and conditions that were agreed to by both parties before the EAs were last reviewed.
- Internal and external pay relativity: in these times of skills shortages, you should consider the potential impacts on the business due to internal wage relativity. For example, look at how your employees are paid compared to each other – including doing a fairness check. Also undertake external benchmarking. For example, how do your pay rates compare to others in your industry or sector? Employees higher-up may possibly want to negotiate a pay increase to maintain the relative difference. Be mindful that you don’t want to lose good people who feel they have been left behind pay-wise, by what amounts to relatively small sums.
- Budgeting: you should add any expected increased costs to your short and medium-term budget forecasts, to help you plan for and manage the effect of higher wage and holiday pay liabilities. If your business is expecting significantly increased costs, you may wish to review your pricing, taking into consideration any possible reaction by customers.
The Government will review the minimum wage rate again later this year.
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Even something as straightforward as a minimum wage increase can involve complexities so if you have questions or feel you could do with some HR assistance, please get in touch.