The National Living Wage Impact On Small Businesses

How will the increase in National Living Wage impact on small businesses?

A large transition in 2016 will be the introduction of the National Living Wage to businesses both large and small.

Beginning on the 1st of April 2016 employers will be required to pay all employees who are aged 25 or over a minimum of £7.20 per hour. The government has begun to warn businesses that April is only 4 months away and to prepare there are several tasks to achieve.

The tasks include:

  • Finding out how many members of staff are eligible for the new rate.
  • Updating the company payroll in time for 1st April 2016
  • Communicating the changes to any staff

If you are not prepared in time or you fail to comply with these rules by not paying, fines and penalties will be doubled, from 100% of arrears owed to 200%. However, these will be halved if paid within 14 days. The maximum penalty amount will remain at £20,000 per worker.

The government recently ran a survey of 1,000 business owners. The survey found that 93% were in favour of the change which will affect over two-and-a-half million workers in the UK.

Survey Results:

The majority of business owners are in favour of the changes to National Living Wage however the small business community may suffer.

  • 88% said it would make staff more productive
  • 86% said it would boost staff morale
  • 82% believed customers were likely to return if the business paid the right rates
  • Around 45% had updated payroll to take account of staff aged 25 and over for the beginning of April 2016.
  • Under 40% had communicated these new changes to staff

These increases could see a staffing loss for some companies, as the wage inflation may be unsustainable for the business to upkeep. The reality for some small businesses is that their margins are lower than most and paying more for NLW could be tough.

The FSB (Federation of Small Businesses) has estimated that for a small retail business with six full-time members of staff who are aged 25 and over and are earning the current adult minimum wage, the national living wage will cost an extra £5,900 a year from April 2016.

The NLW increase will impact via a number of factors, fixed costs for business are sure to rise dependent on their size but this is just one aspect. There is also retention of staff and employment to take into consideration, will these choices inflict on the employment process? The employment market could see a difference from April 2016, as it will be significantly cheaper to employ someone who is under the age of 25.

Are you concerned about the impact the National Living Wage may have on your business? Contact us at K A Farr & Co, Chartered Accountants in Southport for professional and clear advice.