National Living Wage worry for small businesses

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Rostislav_Sedlacek/iStock
Rachael Power
Small Business Editor
Sift Media
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One major change in 2016 for small - and all sized - businesses will be the introduction of the National Living Wage (NLW).

From 1 April 2016, all employers will have to pay employees aged 25 and over £7.20 per hour.

The government is warning businesses that there are just four months to prepare for the change and several tasks to achieve in this time, including:

  • Finding out which staff are eligible for the new rate
  • Updating the company payroll in time for 1 April 2016
  • Communicating the changes to staff

Fines for those non-compliant with the National Living Wage penalties for non-payment will be doubled, from 100% of arrears owed to 200%. These will be halved if paid within 14 days, however. The maximum penalty will remain £20,000 per worker.

The government ran a survey recently among 1,000 ‘business leaders’ which it said found 93% were in favour of the change which will affect over two-and-a-half million workers UK-wide.

The survey found:

  • 88% said it would make staff more productive
  • 86% said it would boost staff morale
  • 82% believed customers were likely to return if the business paid the right rates
  • Around 45% had updated payroll to take account of staff aged 25 and up on 1 April 2016
  • Under 40% had communicated the upcoming changes to staff

The majority of bosses being in favour of the NLW however seems slightly at odds with what BusinessZone has been hearing from the small business community.

Passing costs to the customer 

Ian Cass, managing director of the Forum of Private Businesses (FPB) said the move to the NLW means passing on costs to customers next year will be tougher.

“Even in industries that are traditionally not affected by wage regulation, paying more than the minimum there is a concern about unsustainable wage inflation.

“The Forum would have liked to see costs for businesses reduce by the same proportion as the rises so that the overall cost of employment was not affected.  For all the rhetoric, Employment Allowance only removed National Insurance contributions for one person and the reduction in corporation tax has had a marginal effect,” he said.

Cass added that productivity needs to increase but that he doesn’t see how “starving businesses of funds to invest in new machinery or training for staff to retain current levels of employment will help improve companies achieve this.”

Other small businesses have come forward to say while they agree with the principle of the NLW, its reality is much different for smaller firms.

Potential closedowns

Glyn Shem, owner of We Clean Any Home said he fears it will put him out of business.

“We are not fat cats coining it in, our margins are very low and we take all the hits when clients don't pay so it is going to be very tough for my business, as it will be hard for our target market to pay any more for the services they receive,” he told BusinessZone.

Over on our own small business community, UK Business Forums, members have commented on recent threads that they too are concerned.

Effect on the employment market

UKBF member Henry Collinge said retailers are among those who will be most affected by the NMW introduction.

“The impact of NLW on fixed costs which will clearly rise according to the size of the retailer, but there are other factors to consider in how firms introduce it, such as the impact on recruitment and retention among under-25s and company reputation in general,” he said.

Another member, Kulture, added the advent of the NLW will have an effect on the employment market as it will become “significantly cheaper” to employ someone under 25.

Are you concerned about the impact the National Living Wage will have on your business? Comment below to let us know. 

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