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National Minimum Wage: How Does the Increase Affect You?

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From 1 April 2016, the UK’s minimum wage will rebrand as the National Living Wage and rise from £6.70 per hour for over 21s to £7.20 per hour for over 25s. Up to a million workers across the UK are expected to benefit from the 50p pay increase.

The government has also outlined an ambition that the National Living Wage will reach 60% of median earnings, or an estimated £9 per hour, by 2020. 

So what do all these changes mean for your business? While many SMEs have been pessimistic about the increase, which will increase their payroll costs, there are benefits, including a general boost to the economy and an increase in productivity at home.

A survey by the Federal of Small Businesses (FSB) found that 38% of SMEs expect the new National Living Wage will have a negative impact on their businesses, with just 6% anticipating positive effects. More (over half) are even warier about the projected rise to £9 per hour by 2020.

Increased wages will certainly inflate companies’ overheads and squeeze cash flow. A small retail business with six full-time staff over the age of 25 earning the current minimum wage will face an additional £5,900 in wage costs from April.

In response, many companies report that they’re putting off hiring new staff and may be forced to curb employee hours and/or raise prices. Around a third (29%) are expecting reduced profits as a result of the wage increase. 

However, the Office for Budget Responsibility (OBR) is sanguine about the impact on businesses. It estimates that the cost to businesses will amount to just 1% of companies’ profits. It also anticipates the change will have only a “fractional” impact on jobs, with more created as a result (one million by 2020) than lost (60,000).

Other Advantages include

  • an increase in employee productivity, motivation and morale
  • better employee retention, reducing money spent on recruitment and training
  • fewer absences for illness
  • higher wages will give Britons more money to spend at SMEs and boost the economy in general.

Higher wages can this be seen as an investment in staff and in the wider economy.

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