The 1st of April 2022 will see workers who get the minimum wage receive a pay rise, seeing the wage of those aged over 23 increase to £9.50 an hour.
However, for many UK start-ups and SMEs, particularly those in sectors that have been hardest hit by Covid such as the tourism, hospitality and leisure sector, the pressure on costs is already huge, with the real UK wage struggling to keep up with the cost of living.
For these employers, an increase to the National Minimum Wage means increased employee pay but also an increase to the associated cost of National Insurance and holiday pay.
Anoop Rehal, Partner at Haines Watts has offered advice to SMEs struggling in the face of the wage increase.
Anoop said, “There is very little slack in these businesses to absorb a rising wage bill. They effectively have three options. The first being that they dip into their own profits to fund the increase. However, if a business does not have these profits available, which many don’t due to the effects of the pandemic, this would not be a viable option. For these businesses, they may choose to pass the cost onto customers. For example, a restaurant might choose to apply a mandatory service charge to bills to fund the increase.”
He continued: “If businesses can’t take these two options, we may see them cease hiring to try and meet their needs with existing staff. This will in turn create a problem down the line around workplace stress.”
Anoop explained: “It gets even more complicated though. There are a lot of start-ups and early stage SMEs that are thriving. Many of these owners accept that year on year wage costs are likely to increase. They have budgeted for this and can absorb the costs. More importantly, particularly in sectors like tech, these businesses choose to pay the National Living Wage, which is higher than the National Minimum Wage, so that they can attract the best talent.
“This difference between National Living Wage and National Minimum Wage means that it makes it even harder for those fledgling businesses that may be struggling, to attract and retain people because they simply cannot match wage demands. The construction sector is a good example of this – the competition for talent is fierce at all levels, wages are rocketing and valuable people are constantly moving for better pay.”
The competition for staff in most sectors is relentless, making it effectively an employee’s market where start-ups that can only offer the National Minimum Wage will struggle to secure workers or retain those already on the books, with indications that this is a trend that will continue through 2022.
