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Article:

Planning for higher employee costs in 2019

26 November 2018

Have you started budgeting for higher employee costs in 2019? Here are a few key reasons why we expect most employers will face higher employee costs in the year ahead.

The jobs market

The latest data from the Office for National Statistics (ONS) shows that the UK labour market has expanded in the year to the third quarter of 2018 with over 350,000 more people in employment. Employment at 75.5% is near its record high and unemployment at just 4.1% with a fall in part time workers (as 416,000 full-time jobs were created). The impact of Brexit is clear, a fall of 132,000 EU nationals working in the UK: this was slightly mitigated by an increase of 34,000 in the number of non-EU nationals employed.

In addition, there were 845,000 job vacancies for August to October 2018, 44,000 higher than in the same quarter of 2017. Given these statistics, it is perhaps no surprise that basic wages grew at 3.2% (the fastest growth rate in a decade) as employers increasingly compete to attract staff. Despite the potential impact of Brexit, it seems sensible to assume that wage inflation will last well into 2019 and beyond.

Auto-enrolment pension contributions

From April 2019, auto-enrolment pension contributions for employers will increase by 1% and the increase for employees will be 2%. Many employees will see a fall in net pay as a result. Although this will be partly offset by tax savings due to the increase in the personal allowance to £12,500, many will be worse off. This will put yet more pressure on employers to increase wages or face losing valued team members willing to change jobs to increase their pay.

Minimum wage

The Government has announced the new rates from April 2019 (below) and, as in the past, the percentage increases will exceed both inflation and the current national wage growth rates. For employers paying the minimum wage to a large part of their workforce, a wage increase of 4.8% for workers (plus the 1% auto enrolment increase) represents a substantial change in overall costs. Of course, in the current labour market, employers may find that offering the minimum wage is simply not good enough to attract the workers they need.

Worker age

Hourly rate from 1 April 2018

Hourly rate from 1 April 2019

% increase

Apprentices < 19 and/or in first year

£3.70

£3.90

5.4%

Under 18

£4.20

£4.35

3.6%

18-20

£5.90

£6.15

4.2%

21 -24

£7.38

£7.70

4.3%

25 and over

£7.83

£8.21

4.8%

How BDO can help

Our experts can help you make the most of the staff benefit packages, share schemes and wider reward schemes you offer to make your business more attractive to employees and potential recruits.

Employer Essentials Index