Knowledge is Power

What the NMW and ERNI increase means for agencies, hirers, and contractors.

In September 2021 after months of rumours, the government finally announced that it will raise national insurance contributions starting in April 2022. And then, as part of the autumn budget, it was revealed that the National Living Wage, and the National Minimum Wage, will also increase. So, what does this all mean for agencies, hiring companies and contractors and how can we best prepare ourselves?

What is happening with the ERNI increase?

To help fund health and social care reform, the government will increase both ERNI (Employers National Insurance) and individuals national insurance contributions by 1.25%. In effect, this will make employing staff more expensive, as well as reduce wages for those employed.

How should agencies prepare?

Agencies should make sure that both contractors and end-hirers are aware of the impending changes. This might include discussing the real term decrease in pay for workers (for example, on an average £20k the increase will cost the worker an extra £130 per year).

How should hiring companies prepare?

Hiring companies who are employing contractors might want to consider increasing their day rates to help protect workers from the increase in NI contributions. This will help retain staff and prevent them from moving to competing employers.

How should contractors prepare?

Contractors should discuss the increase with their agency, to make sure that they are aware of exactly how their pay will change in April.

What is happening with the National Minimum Wage increase?

The National Living Wage is the mandatory living wage for workers aged 25 and above. The National Minimum Wage is the mandatory wage for the under 25s. Both the National Minimum Wage and the National Living Wage are due to increase in April 2022. This will increase payroll requirements and make hiring more expensive for companies, and with many having faced 18 months of financial hardship and uncertainty, this could be a bitter blow on top of the rise of ERNI. But the UK economy is forecast to return to pre-covid levels by 2022 and the wage increase will hopefully help employers to keep hold of their staff in a time when many people are reconsidering their working lives and making the decision to change jobs.

How should agencies prepare?

Speak to end users and ensure they are ready for the increased payroll costs. Discuss staffing needs and make sure that clients can meet their new labour costs. For companies in already stretched industries, for example, hospitality, they cannot prepare early enough for the changes.

How should hiring companies prepare?

Hiring companies should be looking now at how their payroll costs will increase in April. There has been less than 6 months notice of this change, so it is crucial that companies make the most of the remaining time to get their ducks in a row.

How should contractors prepare?

Contractors should work out how their pay will increase. But before you celebrate too hard, also look at the increase in NI and how the two increases will impact your pay packet, as one may well cancel out the other. The changes to the national minimum wage and NIC contributions are coming in April and will mean increased strain on businesses. The double whammy of the two increases will raise concern for everyone, however businesses can prepare themselves for the changes and ensure that they have minimum impact. And, with the government now naming and shaming (and fining) companies which don’t comply with minimum wage requirements, it is crucial that employers make sure that they can afford the new rates. Ship Shape can advise you on how you can prepare your contractors and end-hirers for the changes, talk to us today about how we can help.
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