When the Government announced that the minimum wage would be replaced by the higher National Living Wage for over-25s from this April, the majority of workers on a lower income were fairly pleased. That’s because it was likely to mean a rise in pay for some of the lowest earners which would make it easier for them to afford bills and their other financial commitments.
However, one group of people who weren’t celebrating the new National Living Wage were self-employed workers. According to new stats from the Social Market Foundation (SMF), more than 1.7m self-employed people won’t benefit from the rise in low pay. That could mean there will still be a large number of workers struggling to make ends meet on low pay after the rate comes into force from April.
£7.20 an hour
The Government’s new National Living Wage for workers aged over 25 is £7.20, up from the previous minimum wage of £6.70 an hour. That means the legal minimum over-25s can now be paid has risen by 50p an hour. In real-world terms, if you were working 40 hours a week at the minimum wage, you’ll be earning £20 a week more now that you’re on the National Living Wage. The National Living Wage is set to rise to £9 an hour by 2020, meaning more money in your pocket if you’re on a low income.
Don’t mix up the National Living Wage and the living wage – they’re two separate things. The National Living Wage is essentially the new minimum wage for over-25s – it’s the minimum you can be paid by law. The living wage is a benchmark that is said to be the amount you need to earn to maintain a basic standard of living. It’s £8.25 an hour, £9.40 if you live in London and it’s not legally enforceable.
According to the SMF’s stats, the new rate won’t cover the self-employed. That means we could start to see a growing divide between low paid employees and self-employed workers on a low income. Companies could also be more likely to hire self-employed contractors than taking on full-time employees as they wouldn’t have to pay them the National Living Wage.
If you’re self-employed, it can be really difficult to manage your finances if you’re not sure how much you’re going to earn every month. That’s because you might have one really good month where you can afford all of your bills really easily but the next month might be really tight and you could really struggle.
When you’re putting a budget together, write down your income as an average of the last three months. You’ll then need to budget to afford all of your outgoings from this averaged amount – that way, you should be able to cover all of your bills most of the time, regardless of how much you earn.
If possible, it’s also a good idea to build up a short-term emergency fund, enough to cover all of your bills and expenses for a month. This could help you to afford to pay your bills if you’re having a lean month where you don’t earn as much. You should aim to start building up this fund whenever you have a particularly good month where you’ve got quite a bit of disposable income leftover after your bills so that when you’re not doing as well, all of the important things will still be covered.