National Living Wage – Can small businesses afford it?

The National Living Wage will be £7.20 an hour from April for workers aged 25 and over, rising to £9 by 2020. The minimum wage will continue to function as before for those under 25.

Workers aged between 18 and 20 are currently entitled to at least £5.30 per hour while 16 and 17-year-olds have a minimum wage of £3.87 an hour.

Apprentices aged 16 to 18 and those in the first year of their apprenticeships have a minimum wage of £3.30 an hour.

BY Itrat Bashir and Raheema Khan

From April 2016, the rate of national living wage per hour will increase from £6.70 to £7.20 for workers aged 25 and older. While many households will be pleased with the news small businesses feel threatened by the news and many
say they simply won’t be able to afford the increase.

In order to survive according to a survey done by think-tank the Resolution Foundation and the CIPD nearly a fifth of companies say that they’re going to have to put prices up when the new national living wage, comes into force according to a major new study.

The survey, which was conducted late last year, asked more than 1,000 employers how they would cope with the new wage, which will legally require companies to pay all employees over 25 at least £7.20 per hour.

It showed that when asked about how they would cope with the likely increases in their wage bills, 15 per cent of companies said that they would put prices up; a further 15 per cent said they’d be forced to make redundancies, or slow recruitment; and 16 per cent said they’d trip bonuses and overtime given to staff.

22 per cent of respondents said they’d just have to accept lower profits, and most popular way of coping with the national living wage was to try and increase productivity. 30 per cent of employers said they will do this come April. Of the companies surveyed, 54 per cent said that the Chancellor’s new living wage would increase their total wage bill, with the worst affected industries being retail and hospitality, where 79 per cent and 77 per cent of companies said that wages would have to go up overall.

Numerous companies have already complained that changes to the minimum employers can pay their staff will hurt their ability to make money.

John Allan, National Chairman of the federation of small businesses told Asian Sunday, “Over half of our members already pay their staff above the voluntary Living Wage, but those that don’t are often operating in highly competitive sectors with very tight margins. In many of these industries, the only sustainable way to deliver real long term wage growth is to improve productivity. Without improved productivity there is a real risk that higher enforced statutory wages will lead to fewer jobs being created, fewer hours for existing staff and, unfortunately in some cases, to job losses.”

“When businesses that said they will be negatively impacted were asked how they will adapt to the new National Living Wage when it comes in, just over half (52 per cent) said they would put off hiring new staff while 50 per cent said they will raise their prices.

“Other steps businesses plan to take to manage the higher wage level include: cutting staff hours (41 per cent), reducing staff numbers (31 per cent), cancelling or postponing planned investments (29 per cent) and eroding pay differentials by freezing or cutting the wages of higher paid staff (26 per cent). Almost a third of businesses owners expected to absorb the cost through reduced profits (29 per cent).

“With the economy recovering it is right that employees should be rewarded with a pay rise – but we cannot allow wages to become a political football. It’s important that the independent Low Pay Commission continues to play a central role in setting the minimum wage – and that includes deviating from the Government’s plan to raise the National Living Wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it.”

Our business reporter Itrat Bashir spoke to small Asian businesses and found out what they had to say:

vox pop 4Sohail Muhammad who owns a pound shop in Dalston Kingsland, London said:

“A raise of 50 pence in the national living wage is a big increase and definitely it will have a negative impact on my business. These days, sales are slow. With the depreciation of the pound, imported goods have become more costly. It goes without saying I will apply the new national living wage rate, but to compensate the rise in cost of doing business, I will have to reduce the hours of my staff.

“I believe an increase of 30 pence would have been a decent and acceptable increase.”

Tarluk Kapoor, owner of a food and wine store in Camden Town, London seemed to agree with Mr Muhammad, he said:Vox pop image

“The increase in the national living wage will definitely cause problems for me and other small retailers. Profit margins are already low these days due to tough competition from high street stores that are open late in the night, and high business cost and tax rates. The raise of 50 pence will further shrink our profits.”

Abdul Ghafor, Owner of a grocery store, International Supermarket, at Kentish Town, London

vox pop 3“The raise in the national living wage is unjustified under the prevailing business environment; the business is already slow these days. We are overburdened with high rates of taxes and duties and now we have to cope with new national minimum wage rate.

“A 50 pence increase is not viable for us and we will be forced to run my shop without a staff. Big stores on the high streets have the capacity to apply the new rates, but small retailers like me will not be in a position to do so. Overwhelmingly, small retail businesses are owned by the Asians and thus they will be the hardest hit by the raise.”

Azmat Rafique, however who owns a fast food outlet in Kentish Town London, disagrees. He told Asian Sunday:

vox pop 2“I do not believe that the increase in the national living wage rate will have an impact on small businesses like ours. I am already paying well above the forthcoming minimum rate; on average a staff in the fast food outlets is earning minimum £7.50 per hour. Thus, there will be no impact on my business. It is hard to find staff for our business these days and hence we have to offer better salaries to attract people.”

Amir Zaka, however an Accountant in Hackney, London agreed with Mr Muhammed in that the increase should have been no more than 30p. He said:vox pop 1

“The impact is inevitable; a 70 pence raise in the rate of national living wage is huge for small businesses. Hiring of staff will become more expensive for small business owners who are already working on small profits. This will definitely escalate in cost of doing business. To absorb the impact, the small business owners will have to either slash staff or reduce their hours. I think an increase of 30 pence is more manageable.

 

In the northern part of England many business owners were reluctant to comment due to the difficult task of wanting to offer their staff a better living wage, but at the same time not putting pressure on their own business on the affordability of the additional business expenditure.

Mr Saleem Kader, MD of Asian retailer Bombay Stores, Bradford who employ 70 people shared the view that although he is sympathetic to the government’s position and doesn’t disagree that people deserve a pay increase overall, he believes the economy is not stable enough to have this much of an increase at once and that the planned increases to £9 an hour will be too much and have a large impact on small businesses. He explained:

“Unless the government has a way of compensating businesses in the long term, the increase will definitely affect and cause damage to small businesses

“Although I understand what the government is trying to do, personally I think it is too much too quickly. The increase to £9 will have a large impact on small businesses.

“Paying an experienced person the increased wage is fine, and many of our staff do earn that, but paying it to new and untrained people will be difficult.

Are you a business owner and want to share your views on the government’s new national living wage which will be implemented from April? Drop us a line newsdesk@asiansunday.co.uk or tweet us your thoughts to @AsianSundayNews

 

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