National Living Wage May Put Small Businesses Under Pressure

Posted on 4 April, 2016 by Chris Grigorovsky

Last week, National Living Wage (NLW) was implemented as a legal requirement and the Federation of Small Businesses (FSB) is urging small businesses to act now to avoid hefty penalties.

As of now, if an employee is aged 25 and over, the compulsory minimum wage they are legally entitled to is £7.20 per hour, which is an extra 50p per hour. The overall goal for the Government is to rise the NLW to an equivalent of 60% of average earnings by 2020.

This aim means that by 2020, National Living Wage will increase to £9.15 per hour. This is subject to change. However, things may not be as straightforward for every business.

The FSB, advisers to the Government on minimum wage, has said it should be able to deviate from the target set if the economy’s unable to afford it.

Another issue arisen is the impact said changes will have on a collection of small businesses out there. In a survey by FSB last year to its members, it revealed that 38% of small employers are expecting the NLW will have a negative impact on their business, while only 6% think it will be positive.

Results of the survey, when asked about the £9 an hour by 2020 projection, revealed over half of small businesses (54%) saying they’ll be impacted negatively.

Sectors most at risk for negative impact are wholesale and retail, as well as accommodation and food services. With Yorkshire, the West Midlands and South West most likely to be affected.

Businesses that envision a negative impact were asked how they would adapt to the changes and 52% said they would hold off hiring new staff, while 50% said they would raise prices.

National Chairman of FSB, Mike Cherry, commented: “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.”

He goes on to say that the only way in which people can get a pay rise is if productivity is increased, boost skills and drive business growth. Cherry adds that the Low Pay Commission must play a central role in setting minimum wage.




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