Rising national living wage hits SME profits

64% of small businesses are seeing profits fall as a result of the national living wage (NLW) rise, according to research.

The NLW increased from £7.20 to £7.50 per hour on 1 April 2017.

Out of 835 businesses surveyed by the Federation of Small Business (FSB), 39% have put up prices to cope with the NLW increase.

Almost one in four (24%) firms either cancelled or downscaled investments, while 22% reduced working hours and 19% hired fewer employees.

43% of businesses increased wages in line with the NLW, suggesting the majority of owners are already paying their workers above the new rate.

Mike Cherry, national chairman at the FSB, said:

“Small businesses owners have demonstrated their resilience in meeting the challenge set by the NLW, with many cutting their margins or paying themselves less to pay their staff more.

“In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW. It is vital the NLW is set at a level the economy can afford, without job losses or harming job creation.”

Dealing with the wage rise

Less stressful, but far from straightforward, ways to manage the costs of the NLW include:

  • increasing productivity
  • streamlining your processes
  • passing on additional costs on to your customers.

Penalties

If you fail to pay staff the NLW, you will face a fine based on the underpayments.

The penalty for firms who do not comply with the NLW is 200%, although this will be halved if employers pay within 14 days. The overall maximum penalty is £20,000 for every underpaid worker.

Our team can talk you through the NLW.