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 in last year’s Autumn Budget (2023), 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 £10.42 an hour for workers over the age of 23. However, it will now be raised to £11.44 per hour from April 2024. That’s the equivalent of an effective £1,800 annual pay increase.
This rate will also apply to 21 and 22-year-olds for the first time. So, a worker this age will go from hourly pay of £10.18 to the new £11.44 wage and have an effective £2,300 yearly pay rise.
For 18-20-year-olds, their wage will increase from £7.49 to £8.60. Apprentices will also get a rise, with hourly pay going from £5.28 to £6.40 an hour.
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 2.7 million low-paid workers. That has the potential to be a huge benefit for these workers, who are undoubtedly feeling the pinch of 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.
Kate Nicholls, Chief Executive of the hospitality industry body UK Hospitality, wrote on X, that the rise was “a reminder that although government announces it, it is businesses who deliver it and why it is so vital other action is taken to reduce tax and costs, particularly [business] rates.”
Let’s put the wage rises into context. If you as a business owner employ three people aged 23, on minimum wage, you now need to pay them each an extra £150 a month, working out at £1,800 a year. Together, that’s an extra £450 a month, and an additional £5,400 a year.
Maybe you’re a slightly bigger business, employing 10 people aged 23, at the rate of minimum wage. That’s another £18,000 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 commercial 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