Small businesses are struggling to cope with the demands of the National Living Wage, according to new research from the Federation of Small Businesses
Some of the headline findings include the fact that 47 per cent of small businesses now cite wages as the main contributor to the rising cost of doing business. Given that, and other stresses associated with complying with the regulation, the majority of SMEs are (59%) absorbing the costs by taking lower profits.
“Small employers have stretched to meet the challenge set by the National Living Wage, with many paying their staff more by reducing operating margins,” said Mike Cherry, National Chairman at the Federation of Small Businesses (FSB). “This will get harder for many firms in later years, with the targets set in a ‘pre-Brexit-decision’ economy.”
SMEs reactions mixed
Small businesses are responding to the changes in a number of ways, aside from taking smaller profits. The FSB research found that 35 per cent have increased prices, and 24 per cent have reduced staff hours. “Additionally, 16 per cent have recruited fewer workers, while 23 per cent of those affected have reduced investment into their business.”
However, there have been some isolated positive consequences: 13 per cent of SMEs have sought to improve efficiency or productivity. “The sample size for this group of businesses is low, but suggests that job/work redesign, investment in training and investment in technology are the main ways in which employers are seeking to increase productivity,” the FSB says.
“Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities.”
The FSB says it is calling for the Low Pay Commission to be given flexibility on how to meet the Government’s NLW target of 60 per cent median earnings by 2020. It says that it wants this target to be adjusted if it becomes clear the economy cannot bear the rapid pace of NLW increases. The NLW is currently projected to rise by £1.85 per hour over the next four years, reaching £9.05 by 2020.