Living Wage will squeeze small businesses, experts say » SMEInsider

Living Wage will squeeze small businesses, experts say

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Small firms across the UK will be put under pressure when the National Living Wage comes into force tomorrow (1 April), according to industry experts.

Glyn Roberts, chief executive of the Northern Ireland Independent Retail Trade Association (NIIRTA) has warned that the legal duty to pay workers aged 25 and over the new minimum of £7.20 per hour will put a strain on SMEs, with many left struggling to pay their wage bills.

Wage bills for some firms could increase by more than 50 per cent over the next four years, he said. This is especially burdensome given the backdrop of other business pressures, such as pension changes.

 

‘Perfect storm’ of rising costs for SMEs

Roberts told the BBC: “Not only do they have to afford the living wage, but they also have to pay for auto-enrolment, and many of them have experienced quite a big hike in business rates.

“So a lot of small businesses are experiencing almost a perfect storm of high cost issues.

“But there is a particular concern that auto-enrolment pensions and the living wage could put their wages bill up by over 50 per cent by 2020.”

Meanwhile, the Federation of Small Businesses is urging small and medium-sized firms to make sure they implement the Living Wage to avoid facing heavy penalties.

More than one third (38 per cent) of the Federation’s members expected the National Living Wage to have a negative impact on their business, while just 6 per cent thought it would have a positive impact, when polled last October.

 

Difficult to sustain

To offset the higher wage bill, more than half (52 per cent) of FSB members said they would put off hiring new staff, while half said they would be forced to raise their prices.

Mike Cherry, FSB national chairman, said: “With the new National Living Wage coming into force this Friday, all employers have a legal duty to make sure they pay their staff the correct wage.

“Small businesses are playing their part by creating jobs and boosting pay packets wherever they can. Our research suggests that over half of small firms already pay their staff more than the voluntary Living Wage, but those that don’t are often operating in highly competitive sectors with very tight margins.

 

Skills and growth must rise too

“While it is easy to say everyone deserves a pay rise, the only way to deliver and sustain higher wages in the long run is to improve productivity, boost skills and drive business growth.

“Without the right type of productivity growth, there is a real risk that in many sectors higher enforced statutory wages will lead to fewer jobs being created, fewer hours for existing staff and, unfortunately in some cases, job losses.

“It’s important that the independent Low Pay Commission continues to play a central role in setting minimum wages. This includes having the ability to recommend that the Government deviates from its plan to raise the National Living Wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it.”