How can SMEs prepare for the National Living Wage?

Predictably, predictions of job cuts and slower growth for SMEs followed the announcement of a compulsory National Living Wage in July’s emergency budget.

But how serious a threat is it really, given that businesses are already used to annual increases in the minimum wage and the £9 Living Wage will not come into effect until five years hence in 2020?

Although there are other factors such as business rates and rent that received no mention in the budget and play into business costs, the wage issue alone need not put a brake on plans for growth.

Firstly, some of the increased wage bill is offset by an increase in the employers’ national insurance employment allowance from £2,000 to £3,000 and from a reduction in corporation tax. Secondly the living wage will only apply to those aged 25-plus.

It could, therefore, be used as an opportunity to plan ahead, which all businesses should be doing each year in any event.

All businesses depend on a well-motivated and well trained workforce and with four or five years still to go, now might be a good time to consider taking on an apprentice or two or investing in staff training.

It may also be a good time to invest in more up to date equipment and more automation or to consider outsourcing some routine tasks that will leave more time for existing staff to focus on those tasks that need to be done by skilled humans.

Arguably, such measures will bring the advantages of a more stable, committed and engaged workforce and higher productivity per person and a growing business better prepared for paying the Living Wage in 2020.

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