The Government has signed off on an 80c increase in the national minimum wage.
Tánaiste, Leo Varadkar confirmed that the new minimum wage rate of €11.30 per hour will be effective from January 2023. This is the largest single increase in the minimum wage since its introduction in 2000.
While we recognise that this increase in the minimum wage is intended to help lower income workers manage the cost-of-living crisis, we also anticipate that many businesses may have to consider cutting hours or even jobs to absorb soaring energy costs and now labour costs.
Reducing headcount should only be a last resort but if it’s necessary, it’s vital to terminate employment in line with the relevant redundancy or unfair dismissals legislation to avoid making a difficult situation worse.
Let’s take a look at what this might mean for your business…
Historic National Minimum Wage increases
The national minimum wage is currently €10.50 per hour. Historically, recommended increases have ranged between 10c and 60c. The most recent increase to the hourly rate was 30c.
What does the National Minimum Wage increase mean for Irish employers?
As the ongoing cost-of-living crisis is also a cost of doing business crisis, this proposed increase represents an added financial pressure that employers could do without.
Energy costs are already squeezing SMEs. Increasing payroll costs, particularly for sectors that rely on unskilled or low-skilled labour will be especially hard to bear.
While this increase in the minimum wage aims to to help lower income workers manage the cost-of-living crisis, there is potential for unintended consequences.
The principal unintended consequence is the risk that employers will have to cut hours or jobs to absorb continuing increases in labour costs.
Employers already facing additional labour costs
The increase in the National Minimum Wage comes in the wake of the recent passing of the Sick Leave Act which established a Statutory Sick Pay Scheme in Ireland.
The new sick pay scheme will also be put into force in January 2023 adding another payroll cost for many employers.
A little further down the line will be pension auto-enrolment. This pension investment scheme is scheduled to be set up in 2023 with pension contributions beginning in 2024.
Once up and running, employers will need to match the pension contributions of employees up to a set percentage of their gross income.
Increasing costs and the SME sector
With the SME sector facing increases in costs on a number of fronts, the bottom line for many businesses could be less growth, jobs, and competitiveness.
There is a risk that all these additional costs may be too much to bear for certain employers, particularly SMEs.
While reducing headcount should be a last resort, it’s vital to ensure that any termination of employment complies with the relevant redundancy or unfair dismissals legislation that applies.
Get expert advice on managing employee payroll costs with Peninsula
Our advisors can help you manage national minimum wage payments, or any other questions related to employee pay.
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