6 ways to reduce the impact of the National Living Wage | UK

/ Posted By - Bradleys Accountants / Categories - Advice for Small Businesses

The launch of Osborne’s flagship policy, the National Living Wage (NLW), was the headline news in 2015. Set at £7.20/hr for workers over 25, the NLW increased pay by £910*per annum for 1.3m of the UK’s lowest paid full-time workers.

While this is great news for employees, the pressure it puts on business growth and job creation has been cited as a cause for concern.

Right from reduced profits, age discrimination, hiring freezes, through to a ban on overtime, the increased wage bill is said to be making a significant impact on businesses.

We have put together the following steps small business owners can take to mitigate the said negative impact.

With business owners across the UK affected, business operating in particular areas, and of certain sizes, will face a bigger burden. Maybe you need a total rethink of how your business is organised. Start with the numbers. How many of your employees are over 25? What is the projected wage increase to your business? Include the additional costs of pensions, holiday pay, statutory sick pay, etc.

With additional employment costs like pension auto-enrolment and the apprenticeship levy round the corner, it important to prepare business forecasts. A good quality forecast will give you a dashboard view of the future income and expenditure, allowing you to mitigate the impact of NLW. It’s no secret that businesses with proper forecasts, grow more than the ones that don’t.

In case you decide to reduce staff numbers, consider how you can improve productivity and performance. Could an investment in staff training help? Could you cut overall hours while increasing pay? Will giving more tasks and responsibilities to better paid employees help get the most out of every hour in the day?

While some businesses have, unappealingly, cut pay for workers under 25 in a bid to mitigate cost, others are trying to bypass the legislation by hiring workers under 25. Such approaches could lead to disgruntled colleagues, so you must be very careful.

Is your recruitment strategy fit for purpose? Sometimes stepping away from the traditional working contracts and exploring an outsourcing option to grow your staff without hiring could be a way to keep costs down.

It’s not advisable to pass wage costs to the customer, especially if you are in a competitive industry. But if that’s the only option, it needs to be introduced carefully, and in discussion with your customers.

  1. Gauge the impact on your business
  2. Plan and budget
  3. Increase productivity
  4. Hire younger workers
  5. Outsource
  6. Increase prices
In summary, the NLW will affect some businesses more than others. Our key piece of advice is to address the challenges of how to manage costs, and increase turnover or profitability. Sources: https://www.gov.uk/government/publications/national-living-wage-nlw/national-living-wage-nlw

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