Some SMEs reducing hours and staff in response to NLW

Some small firms are recruiting fewer workers or cutting staff hours as a result of the National Living Wage,  but most are either not affected or are absorbing costs through taking lower profits, according to research from the Federation of Small Businesses.

It found that the majority of firms already paid the NLW of £7.20 an hour, but about a third said the new wage has led to some increase in their wage costs and one in five said labour costs went up significantly as a result of the new wage. Those sectors most affected include retail, wholesale and hospitality and accommodation.

Of those firms which report increasing labour costs as a result of the NLW, 59% are absorbing the costs by taking lower profits. However, some firms have had to take other action in order to stay afloat, such as increasing their prices (35%), reducing staff hours (24%), cutting investment (23%), and recruiting fewer workers (16%). Some businesses also sought to meet the increased cost through improved efficiency (13%).

The FSB is calling for the Low Pay Commission to be given flexibility on how to meet the Government’s NLW target of 60 per cent median earnings by 2020. The NLW is currently projected to rise by £1.85 per hour over the next four years, reaching £9.05 by 2020.

Mike Cherry, National Chairman at the Federation of Small Businesses (FSB), 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 the targets set in a ‘pre-Brexit-decision’ economy.

“Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities.”

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