Running a business always comes with challenges. But it’s been especially difficult in recent years, through Covid, and now a cost-of-living crisis the likes of which we haven’t seen before. The toll on small businesses has been immense. While there have been support schemes, there’s always cost pressures, some you can account for, and some you just can’t predict.
So, your staff are one of, if not the most, important parts of your business. The right people help you deliver quality services, connect with clients and grow. Of course, you want to look after them the best you can. But you also have a duty to run a viable business, and recent changes for British businesses could be a spanner in the works.
With a key announcement confirmed in this Autumn Budget (2024), a big change is coming for small business owners and their employees. Let’s dive in and examine what the minimum wage rise really means.
How much is minimum wage changing by?
The minimum wage, officially called the National Living Wage, currently stands at £11.44 an hour for workers over the age of 21. However, it will now be raised to £12.21 per hour from April 2025. That’s the equivalent of an effective £1,505.54 annual pay increase from £22,368.06 to £23,873.60.
For 18-20-year-olds, their wage will increase from £8.60 to £10 an hour. Apprentices will get the largest pay bump, with hourly pay going from £6.40 £7.55. That means their annual wage will go up to £14,762 from £12,513 at the moment.
That’s a lot of numbers to wade through, and at a first glance, it may not seem like a huge increase. After all, it’s a rise of around a pound per hour. But it means in total the above-inflation wage hikes will benefit over three million low-paid workers. That has the potential to be a huge benefit for these workers, who are undoubtedly feeling the pinch of previously high inflation, fuel prices, housing, and more.
But, is it enough of an incentive to young workers? A living wage is a key factor, but young people are also on the look out for flexibility, work-life balance, and training opportunities that further their careers. So it’s not just as simple as paying those entering the workforce more. It’s about offering them a bigger picture.
The impact on businesses
The wage rise all sounds great on paper. But SME advocates have pointed out a crucial factor in these pay rises: small businesses must foot the bill, not the government.
Policy Chair of the Federation of Small Businesses (FSB), Tina McKenzie called for a “substantial uplift” in the Employment Allowance, to ease the level of tax on jobs in small firms, which provide employment for more than 16 million people:
“Other business costs also remain high at a time when many small businesses have still not rebuilt the reserves they had to use to get them through the worst periods of the pandemic. Decisive action from the Chancellor to support small firms when it comes to business rates would be welcome, releasing money for jobs and investment rather than taking it away in what is essentially an analogue tax in a digital age.
“Those who take the risk to go-it-alone and set up their own business should be recognised for the investment – both personal and financial – that they make, and more people should be incentivised to do so as a way of growing the economy overall. Therefore we’ve been urging the Chancellor to maintain entrepreneurs’ relief, so those who’ve poured their heart and soul into running a business don’t have the rug pulled out from underneath them.”
Let’s put the wage rises into context. If you as a business owner employ three people aged 21 or above, on minimum wage, you now need to pay them each an extra £125 a month, working out at £1,505 a year. Together, that’s an extra £376 a month, and an additional £4,516 a year.
Maybe you’re a slightly bigger business, employing 10 people aged 23, at the rate of minimum wage. That’s extra £15,000 you need to find to meet this new legal requirement.
Of course, this will not just impact workers on minimum wage either. Older, more experienced workers will expect to be compensated more than those on minimum wage, to reflect their skills. So, it could mean that business owners will also have to raise wages across the board, not just at a minimum wage level.
And it’s not as if business owners don’t want to pay their employees. It’s more a case of this rise coming on the back of higher business rates, expiring business rate discounts, skyrocketing energy bills, and many more challenges.
The real risk is that if small businesses can’t afford the new National Living Wage, they’ll be forced to make cuts and reduce their workforce. So, we could be faced with a rise in unemployment, with workers forced to find new jobs. The knock-on effect could lead to a lack of business growth, with small businesses on the decline – a picture no-one wants to see.
What business support can I get?
With so many cost pressures on your business, it’s important to see what grants, funding and support you could be eligible for. There is a wide range of funding available, and it’s worth working with an accountant to fully understand the impact on your taxes.
And, our business insurance experts at Howden are on-hand to help. With specialist cover for a wide range of trades, we can support you to find a tailor-made, flexible policy that can provide cover for risks that are unique to your business.
Simply find your local business branch, and give our team a ring or visit in person.
Sources: BBC, FSB, The Telegraph, UK Hospitality
This is a marketing blog by Howden.