National Living Wage is Dampening Small Business Profits

A number of small firms have had to increase prices and recruit fewer staff since the introduction of the £7.20-an-hour minimum wage rate

National Living Wage is Dampening Small Business Profits

The latest report by the Federation of Small Businesses (FSB) has raised concerns that the National Living Wage (NLW) is having a negative effect on the UK’s small businesses.

Since the introduction of the NLW wage increase to a minimum of £7.20 an hour in April, 59% of small business owners said they have had to absorb the costs by taking a loss in profits.

Although many small businesses are managing under the pressure to pay higher wages, 32% of small businesses have reported increased wage costs as a direct result of the NLW, whilst 19% say wage costs went up significantly.

Some small business owners are having to take more drastic action in order to ensure they can meet NLW requirements with 35% increasing their prices, 24% reducing staff hours, 23% cutting investment, and 16% recruiting fewer workers.

With many businesses struggling under the new pay rate, the FSB is urging the government to review the NLW if it becomes clear that the economy can no longer keep up with the wage increases.

Mike Cherry, national chairman at the Federation of Small Businesses, said:

“Small employers have stretched to meet the challenge set by the National Living Wage, with many paying their staff more by reducing operating margins. This will get harder for many firms in later years, with targets set in a ‘pre-Brexit-decision’ economy.”

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