How does the increment in the new minimum wage affect my business?

Here’s the big news about the minimum wage and how it affects your business.
Almost every year, the government increases the National Daily Minimum Wage (NDMW) to adjust to the prevailing costs of living and inflation in general. The aim of this raise is to increase daily wage paid to workers, thus protecting them from receiving unduly low incomes for their labour and also to improve their livelihoods.
The new minimum wage took effect from 1st January, 2020, an upward adjustment from GH₵10.65 to GH₵11.82, representing a 11% increment on the least amount to be paid to a wage earner in a day and cumulatively GH₵319.14 per month.
How does this affect your business as we make plans for this year?
To begin, minimum wage is defined as the minimum amount of remuneration that an employer is required to pay wage earners or salaried workers for the work performed in a day, which cannot be reduced by any collective agreement or an individual’s contract.
For business owners, the 3 key areas of the change that affects your business are:
1. Payment of wages and salaries
Now, the increment in minimum wage means you will have to review the wages and salaries of your employees at least in proportion to the 11% increment, especially for those who were earning at most GH₵ 319 before. You must effect this change as it in turn affects the statutory payments you will be making on employee’s wages and salaries. Failure to comply attracts legal actions.
2. Increase in the payment of monthly pension contributions
With the increase, the Social Security and National Insurance Trust (SSNIT) has also increased the minimum basic salary on which to calculate one’s pension deductions from GHS287 to GHS319. Employees who had their basic salary pegged at the recently changed minimum wage will now see an increase. Employers and employees will contribute at least GH₵43.08 per month towards pensions. Since contributions towards pensions are not taxable, business owners are encouraged to use this relief as a means of contributing towards the retirement of their employees while reducing their tax liabilities.
3. Reduction in income tax withheld from employee wages & salaries
Again with the increase in the first tax free bracket, employers stand the chance of reducing the income tax withheld and remitted to the tax authorities. As a business owner don’t think of laying off your workers to reduce your cost of production or staff cost but, see this as a means of contributing to their welfare.
When we make sure that everyone earns a living wage, we’re not stealing from employers to subsidize workers; we’re investing in everyone. If you take care of your workers, they will take of your customers and the business will be well taken care of.
We have attached a template (2020_PAYE_IncomeTax_Template_Built Accounting) on how to calculate the current PAYE as a result of the minimum wage increment. Also, we have a tax calculator app which you can install and use on the go to calculate the new PAYE and other taxes. Click here to access it.
Download 2020 PAYE template
Install Tax Calculator Mobile App