4 implications of the National Living Wage on small businesses

4 implications of the National Living Wage on small businesses

Date13 Oct 2016
Posted ByAdmin

If you are an employer, you must have heard about the ex-Chancellor Osborne’s National Living Wage (NLW) policy. 

It is a mandatory rate, which came into effect on 1 April 2016, payable to workers aged over 25. It is to be paid by all employers, whether large or small.

The NLW, 50p more than the £6.70 minimum wage rate, has increased pay for 4.5m UK workers.  Yet, many have criticised it, saying it is having a negative impact on the health of small UK businesses. 

According to a survey by Federation of Small Businesses (FSB)*, here’s what business are saying:

  1. Reduced profits
  2. Increased wages mean higher costs. This is hampering a business’s ability to grow. 59% of the SME owners FSB surveyed, reported a drop in financial gain as a result of having to absorb the higher wage costs.

  3. Recruitment freeze
  4. Recruitment firm owners have reported a hiring freeze in the wake of this increase. Businesses have become wary about hiring more staff as they want to keep payroll at the same level.

  5. Reduced overtime and bonuses
  6. As per FSB, 47% of small UK firms cite wage bills as the main contributor to the rising cost of doing business. Along with a hiring freeze, many businesses have banned overtime. They feel the upcoming April 2017 rise in NLW could be the difference between whether they can keep their business profitable or not.

  7. Under 25’s feel discriminated
  8. Many employers feel the NLW sends out a poor message as staff under the threshold of 25, feel discriminated against.

For some, the impact of NLW can be easily offset by increasing prices or productivity. Simply finding ways to cut costs can be a mistake.  It is far better to consider these 5 ways to mitigate the impact it has on your business.