SMEs Face Living Wage Pressure

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One of the main talking points with clients at the moment is the impact the introduction of the National Living Wage is having on their businesses.

This has been reinforced by new research from the Federation of Small Businesses with 47% of companies citing wages as the main contributor to the rising cost of doing business.

In order to comply with the regulation, the majority of SMEs (59%) are absorbing the costs by taking lower profits.

“Small employers have stretched to meet the challenge set by the National Living Wage, with many paying their staff more by reducing operating margins,” said Mike Cherry, National Chairman of the Federation of Small Businesses (FSB). “This will get harder for many firms in later years, with the targets set in a ‘pre-Brexit-decision’ economy.”

The FSB research found that 35 per cent have increased prices, and 24 per cent have reduced staff hours.

Some 16 per cent have recruited fewer workers, while 23 per cent of those affected have reduced investment into their business.

Mike Cherry added: "Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities."

The FSB is calling for the Low Pay Commission to be given flexibility on how to meet the government’s NLW target of 60 per cent median earnings by 2020.

The organisation’s analysis showed that the majority of small businesses were already paying all staff above the new NLW of £7.20 an hour. However, about a third of businesses (32 per cent) said the new wage has led to some increase in their wage costs and further one in five (19 per cent) said labour costs went up significantly as a result of the new figure.

The NLW is currently projected to rise by £1.85 per hour over the next four years, reaching £9.05 by 2020.

Among the sectors most hit by the wage increase have been retail, and wholesale and hospitality.

Robert Ellis, Principal of Ellis & Co chartered accountants and business advisors, said: “The introduction of the National Living Wage has undoubtedly placed additional burdens on the SME community. While some have taken steps to improve productivity and business efficiencies, others have been forced to let employees go.

“It is essential that the Low Pay Commission shows the flexibility moving forward that is being demanded by the Federation of Small Businesses. The commission needs to work closely with and listen to business owners and consider any further regulation in line with the overall health of the UK economy.”

For more information on the National Living Wage, please contact Robert Ellis on 01244 343504.