Impact of National Living Wage increase on SME’s

Today’s increase in the National Living Wage will see anyone over the age of 25 and employed full time on 37.5 hours per standard week, receive an extra £18.75 in their gross weekly salary. For low paid young families this is really good news, however for many SME’s this increase could make a major difference to their costs. If an SME is employing 12 people in its business then todays change has the effective of increasing their labour costs to thirteen people, but without the equivalent increase in productivity. The continued planned increase over the next four years, to achieve a rate of £9 /hr by 2020, will again without equivalent increases in productivity have a similar impact.

Under no circumstances am I decrying the need to provide these increases, to ensure that people are receiving due reward for the work they perform. However whilst most large organisations are well able to sustain this level of change, micro and small SME’s have a more limited ability to offset these increased labour costs.

In support of this it would be useful to see some government funding made available to assist micro and small SME’s obtain grants to support cost reduction projects in their businesses.