It’s been a couple of weeks since the Budget and we have taken the time to let the full impact of the minimum wage increases sink in.
The National Living Wage (for those aged 21 & over) will increase to £12.21 per hour from £11.44, an increase of 77p, and the National Minimum Wage (for those aged 18-20) will increase to £10.00 from £8.60.
This, alongside increases to National Insurance, will increase costs for small businesses. The government has stated that its long-term aim is to increase the National Minimum Wage to eventually align with the National Living Wage, leading to a single minimum wage for everyone aged 18 or older.
The impact of this is significant.
For example, before the changes, an 18-year-old working part time, 20 hours a week, would cost £8,944.00. When the changes are implemented, it will cost £10,400.00.
The impact of this isn’t just on the minimum wage staff that you have, it’s on all your staff especially those who are just over minimum wage.
What can you do about these changes?
Assess the impact
The changes are coming, they are inevitable, so the first thing you need to do is assess the impact it will have on your business.
If you haven’t set a budget for the next financial year, then now is the time to do so. Once you have a budget, you can play around with the figures to see what impact this change is going to have.
Whilst you are there, work out your breakeven point – take your GP % and then divide it by your fixed costs.
Armed with your budget and your breakeven figure, you can work out what impact the changes are going to have on your business and then look at ways to manage it.
Take action
- Review Your Pricing
Consider whether a small price adjustment is necessary to cover increased costs. Be transparent with customers about the reasons for any price rises, focusing on maintaining quality and service and communicating value.
- Increase Efficiency
Look at your processes and identify areas where you can save time or money. Streamlining operations or investing in time-saving tools might offset increased payroll costs.
- Incentivise Productivity
Encourage and reward staff for boosting productivity, which can help absorb some of the additional costs. Even small improvements can make a significant difference over time.
- Evaluate Workforce Structure
Reassess your staffing needs. Could you restructure roles or reduce hours without compromising on service? Be cautious to balance cost-cutting with employee morale.
- Plan for Future Wage Increases
Since the government aims to align the minimum and living wage for those 18 and older, begin forecasting for future budgets. Build wage increases into your financial plans to avoid being caught off guard.
Seek Advice
As accountants, we can help you navigate these changes by providing a clear analysis of how increased wages and National Insurance will impact your business finances. We’ll work with you to forecast future costs, identify opportunities to improve cash flow, and plan for sustainable growth.
Our expertise can help you review pricing strategies, overhead and tax-saving opportunities, that might ease the financial burden. Together, we can develop a proactive plan to keep your business thriving despite these challenges.
