As Part of Rishi Sunak’s Autumn Budget, it was announced that the National Living Wage would be increasing from £8.91 to £9.50 per hour from April 2022 onwards. So how might this affect small businesses?
What is the National Living Wage?
The National Living Wage is what the government has named the minimum wage for anyone aged 23 and over since 2016. Despite the name, in the past the National Living Wage hasn’t actually been based on the cost of living, however, increasing it by 6.6% to £9.50 brings it to the real living wage for those outside London, according to the Living Wage Foundation.
In the 2021 Autumn Budget, it was announced that both the National Living Wage and some of the National Minimum Wages would be increasing from April 2022 onwards.
Apprentices under 19 as well as workers aged 21-22 and 23+ will all see increases to their wage as shown below:
| Apprentice | Under 18 | 18 to 20 | 21 to 22 | 23+ | |
| April 2021 | £4.30 | £4.62 | £6.56 | £8.36 | £8.91 |
| April 2022 | £4.81 | £4.62 | £6.56 | £9.18 | £9.50 |
Chancellor Rishi Sunak said:
“This is a government that is on the side of working people. This wage boost ensures we’re making work pay and keeps us on track to meet our target to end low pay by the end of this parliament.”
How Will The National Living Wage and Minimum Wage Rises Affect Small Businesses?
Whilst the news of the rise is great news for many workers, some small businesses may be less than overjoyed to hear the news. Full-time workers earning an extra £1,000 a year also means that businesses will be losing out on £1,000 per person who receives the national living wage.
As many small businesses are currently recovering from the devastating effects of the coronavirus pandemic, some may struggle to afford these increased wages. This could potentially lead to some staff members being made redundant or having their weekly hours reduced from 40 hours to 37 for example.
Will The Increased National Living Wage Benefit Businesses?
Whilst companies will have to fork out more in wages, there are actually a number of benefits of the National Living Wage going up.
According to studies by leading economists, employee morale and work ethic increase when employees believe they are being paid a more fair wage. It has also been found that higher wages result in better physical and mental health as well as reduced ‘decision fatigue’.
This leads to an increase in productivity, helping businesses to make a greater return on their investment in higher staff wages. A Report to the Low Pay Commission found that 24-26% of firms said they found increased productivity following rises in the minimum wage.
It has also been found that raising the minimum wage reduces absenteeism. When employees earn higher wages, they tend to be absent from work less, leading to increases in business productivity. A 2010 paper from economists Laura Bucilia and Curtis Simon concluded that higher minimum wages are linked with lower rates of absenteeism for reasons other than illness.
Higher wages also reduce employee turnover, meaning less money needs to be spent on recruiting and training costs. The Center for American Progress estimates that the cost of replacing low-wage workers is equal to about 16 percent of the employee’s annual salary, meaning the cost to replace a £9.50/hour employee would be around £3,162.
Help! My Business Can’t Afford The Wage Rises!
If your company’s finances are stretched to the point that you can no longer continue paying your employees’ wages at the legal rate once the new wages increase in April, you need to take action quickly. An inability to pay wages indicates much more serious financial issues which need to be addressed to prevent liquidation.
At Ryans, we offer services in Corporate Recovery to provide businesses with the professional help they need in order to identify the cause of cash flow problems and recommend the right solutions to get your business back on track to ensure you can afford to pay all of your bills, including staff payroll.
If it is necessary for your business to go into administration, receivership, or insolvency, we can advise and assist you, but the best advice is to come in for regular business health checks so we can identify potential difficulties at an early stage and recommend appropriate courses of action in plenty of time before the wages go up.
Don’t hesitate to get in touch today to discuss how we can help your business.