Managing money is never far from the minds of small business owners, especially when it comes to managing staff wages.
In recent years, the Government has introduced a number of new measures which have a direct impact upon employing staff, and even though some of the measures have been around for some time, there is still some confusion as to how the rules concerning staff salaries and pension contributions should be applied.
In 2016, plans were first unveiled to replace the National Minimum Wage with a National Living Wage, with the aim of ensuring workers receive a minimum salary of £9.00 per hour by 2020.
Recent changes to the minimum wage have also caused concerns about swinging the scale for SME owners, as worries arise about how to maintain a healthy cashflow given the imminent increase in outgoings.
From reducing margins to rethinking how staff are hired, businesses are revisiting their finances in the wake of these latest changes. But if you’re a business owner, you may be unsure what the increase to the minimum wage could mean for you. Luckily, Finance For Enterprise is here to help.
Here’s our quick guide to what small businesses need to know about the increases to the minimum wage.
What are the changes?
On 1st April 2018, as part of the measures introduced by the Chancellor’s budget, the minimum wage increased from £5.60 to £5.90 for 18 to 20 year olds, £7.05 to £7.38 for 21 to 24 year olds, and from £4.05 to £4.20 for under eighteens.
The National Living wage increased from £7.50 to £7.83 for members of staff aged 25 and over. Whilst this is the legal limit, most responsible employers exceed this amount.
Apprentices also saw a boost, with a rate increase from £3.50 to £3.70 an hour.
What is the difference between the National Minimum Wage and the National Living Wage?
The first National Minimum wage was introduced in 1998 and designed to offer better protection for members of staff against exploitative employment practices.
The National Living Wage is calculated based upon the amount of money people need to enjoy a good standard of living. The National Living wage differs in London compared to the rest of the UK because the price of rent and basic goods is typically higher in the capital than elsewhere.
The National Living wage must be paid to all members of staff aged 25 and over.
How will SMEs be affected?
Speculation about drastic changes to cashflow and even businesses hiring robots to save money, have gained popularity amongst tabloid headlines, but fortunately such headlines are not entirely accurate.
Although businesses are likely to see slower growth following the changes while adjusting to the new payroll, the changes are unlikely to be dramatic if the business follows good financial practice.
The increase in payroll outgoings can be offset elsewhere, through small price increases or reassessing growth plans so business owners can rethink hiring additional staff for the time being.
Should I increase my prices?
All businesses have a duty and responsibility to look after the welfare of employees and this includes ensuring wages paid comply with the national living wage and minimum wage regulations.
Increasing prices may not be the most desirable option for all small business owners, but failing to look after your employees is a far riskier strategy. Failing to comply with the new regulations can result in hefty fines, HMRC demanding money which should have been paid to your members of staff and in worst case scenarios, forcing the closure of your business.
All bad news?
However, it’s not all doom and gloom for smaller businesses facing the payroll increase. Studies have shown that when employees are paid more they are happier at work, more productive and more likely to stay working for the company.
Changes to the minimum wage may seem like a cause for worry, but they are not merely a hindrance; expect some unexpected benefits, too!
At Finance For Enterprise, we support business owners in accessing Enterprise Loans which help to provide an additional source of income. If you are worried about cashflow, payroll or any other financial issues, visit http://finance-for-enterprise.co.uk/enterprise-loans/ or contact one of our dedicated Investment Managers for further information on 0333 014 3455