Sage urges SMEs to speak to their accountants to plan for the impact of the National Living Wage on auto-enrolment

What effect will the new National Living Wage have on SME auto-enrolment, and what measures will SMEs have to do to prepare for the changes? These are questions that accountants and businesses will need to address before the NLW is introduced next year. Will this change cause problems? Well, according to Business Software Company, Sage, the answer would appear to be yes, it will. Sage is warning that hundreds of thousands of UK SMEs could be caught out by an auto- enrolment ‘blind spot’ as a result of the new National Living Wage (NLW).

Sage believes businesses are ill-prepared for the impact the changes will have. With less than six months until the NLW comes into effect, Sage is therefore urging small businesses to prepare and budget accordingly as auto-enrolment pension contributions for over one million employees is set to increase significantly. According to Sage the advent of the NLW means small firms will need to budget for an increase in wage costs of more than £5,000 per employee.

So who exactly is eligible for auto-enrolment? The answer is any member of staff earning over £10,000 per year and aged over 22 years old and below state pension age. So far more than 5 million UK professionals have been enrolled in auto-enrolment pension schemes, but planned government changes will eventually mean that any business with one or more members of staff will be required to offer a workplace pension scheme.

So why is Sage so concerned? Well, it believes businesses have not fully considered the impact that the new NLW will have on existing and future workplace pension schemes. Lee Perkins, managing director, Sage UKI, said:

“Business owners are bracing themselves for the impact of increased staffing costs with the NLW. [However] what isn’t on their radar currently is the increased pension contributions required for a tranche of employees that will be earning an additional £5,000.”

“From speaking with customers we know this is a major blind spot for businesses and one that needs to be acted upon now.”

By October 2018, small businesses will have to contribute three per cent of an individual’s annual salary into a qualifying pension scheme. By 2020, this will be an additional £560 per year, per employee, for staff eligible for the NLW.

“The Low Pay Commission estimates that there are 1,386,000 minimum wage jobs in the country, and these workers deserve to be paid fairly,” added Perkins.

“However, the increased cost of this is in danger of being amplified for small businesses who will be required to make pension contributions that they haven’t budgeted for. Business owners need to be alert to this unforeseen cost and act. If you don’t know what the impact will be, speak with your payroll provider or accountant now.”

If you would like further information about auto-enrolment, workplace pensions or the new National Living Wage, call Steven Glicher accountants on 0161 485 8007 or email

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