Minimum wage increase – How will it affect your business?
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Last month, the National Minimum Wage increased, with employers now required to
pay all of their workers 21 years old and over a minimum of £6.70 per hour. This
represents a 20p increase on the previous hourly rate of £6.50. Those between the
age of 18 and 20 will now receive a minimum of £5.30 per hour compared to the
previous rate of £5.13, and those under the age of 18 are required to receive at least
£3.87 per hour, which is an 8p increase on the year before. Finally, apprentices have
experienced the biggest National Minimum Wage increase, as they are now required
to receive a minimum of £3.30, opposed to the prior £2.73 hourly rate. This is the
biggest increase since 2007.
The next increase is coming too…
It is also worth pointing out that a new National Living Wage is going to be
introduced from April 2016, and this is set at £7.20. This applies to anyone over the
age of 25 years old. This is part of the government’s attempt to move to a society
that offers a higher wage, lower welfare, and lower tax. It is predicted that this
National Living Wage will rise to £9 by 2020. In addition to this, the Office of Budget
Responsibility has estimated that this will lead to 60,000 people losing their jobs.
As an employer, if you do not pay someone the National Minimum Wage, you will
find yourself facing severe consequences, as it is a criminal offence not to do so. You
must also pay arrears to all of the affected employees imminently. The most obvious
impact of raising the minimum wage is the impact it is going to have on your
You are obviously going to be spending more money, and therefore you need to
reassess your outgoings to determine how this is going to have an effect on your
profit levels, and whether you will need to cut back in other areas of your business
spending in order to accommodate the increased amount you are spending on
employee wages. President of the Confederation of British Industry (CBI), Paul
Drechsler, has remarked his surprise at the impact the proposed wage increases
would have, stating it would wipe out the profits of companies.
Therefore, businesses need to look for ways to drive economies, with price increases
being an obvious choice. The chief executive of Whitbread (which owns Costa
Coffee), Andy Harrison, has already announced that the firm are likely to increase
the price of their cappuccinos to afford the wage. A lot of other businesses will need
to cut jobs to accommodate the wage increase.
Bad news for SMEs?
It is likely to be SMEs that suffer the most, as these businesses have a considerable
number of staff that are on the minimum wage. However, these companies will get
help, for instance, the new Employment Allowance will be increased by 50 per cent
to £3,000. Industries that have less room to absorb the increase include farming,
hospitality, and care homes.
However, it is not all doom and gloom, as this increase can have a positive impact on
your business. You will notice a spike in productivity levels, as this increase in salary
will give your workforce a boost in morale. Initially, this increase in productivity may
be enough to counteract the increased expenditure, as your output will rise too.
Nevertheless, you will need to put a plan in place to ensure this productivity is
maintained in the future and it may be time to speak to your accountants to discuss
the potential problems and opportunities these increases will bring.