The National Living Wage (NLW) will lead to a pay increase for more than 128,000 employees in NI this year, new research has suggested. The NLW was introduced in 2016 and is effectively a new minimum wage for workers aged 25 and over.
It was set at £7.20 per hour, however, as announced on 30th December 2019, the current minimum wage rates will change in April 2020, representing an increase of as much as 6.5% for many existing minimum wage employees.
The current rates (2019) are as follows:
How will this impact businesses?
For SMEs, this could be a big hit to revenue and profit. It could even affect their chances of breaking-even. As an addendum to the already looming Brexit, there could be additional costs with imports, supplies and trade. Combine these factors and SMEs will soon struggle to make ends meet. Despite the factors of Brexit remaining unclear, it’s already evident it will have some impact.
Bigger companies may not feel the effects of the increase as much. That's because action can be taken to mitigate the impact of both the NLW and Brexit. Some companies may relocate to EU countries with more flexible wage caps or take precautionary steps to maintain steady revenue.
The knock-on effect
As a result of the factors mentioned above, the question remains…what action could be taken?
SMEs could potentially be forced into insolvency through debt, foreclosure or bankruptcy if they fail to keep on top of finances. This could lead to restructuring or possible redundancies. Some businesses may even merge under TUPE to cover costs and ensure their survival.
For larger corporations that remain in the UK, they could shoulder the burden of additional costs with little to no impact to the structure of the company. If needed, they could look at short-term lay-off/short-time working, provided they have the policies in place.
They may also look to thin out their workforce or make cuts to compensate for a lack of revenue due to high costs.
That said, if managed efficiently, higher income means more disposable income. This could salvage sales and counteract the cost through increased spending from consumers. However, Brexit continues to have a strong influence on the public. People are leaning towards saving as they fear hardship could fall upon the UK.
The government should therefore encourage safe trade and financial stability to assist in the latter of the two avenues the country could take following an increase in the NLM.
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