Profit Plus – National Living Wage

There have been a number of big changes to important aspects of the business environment, which especially affect smaller firms and enterprises in recent weeks. With even more revelations in the papers of how the rich and powerful have used their wealth to utilise tax havens and loopholes to stash their cash away from the clutches of HMRC, some of the changes are perhaps a little unfair, especially as the targets will have been those that put the government in power just 12 months ago.

The changes have affected those who own buy to let properties, are buying second properties, utilise dividends to pay themselves and employ staff on the minimum wage. Not all of these problems can be avoided and will have a real impact on the prosperity of the economy.

Over the coming weeks we will cover each of these topics and more.

National Living Wage
On 6 April, the national minimum wage (NMW) was replaced for the over 25s with the National Living Wage with the new minimum hourly rate of £7.20 or just over £13,100 pa for those working 35 hours.

This is a 70p /hr increase from the level in force only 6 months ago. Of course this has a knock on affect not only for those that were on the NMW, but also those that were earning levels just above, and perhaps well above, that level. And with further increases planned many businesses are going to find that their employment overheads will rise significantly in the coming years.

Small changes can have a big effect on a business. Wages are often a businesses single biggest area of expenditure and therefore a 10% increase can be a large proportion of the overall profit. The multiplier effect of profits to sales will mean that many firms will need inflation busting price rises simply to maintain their profit levels. The biggest increases will be required in low margin, high wage industries where competition is often keenest.

Will your customers be willing to accept large price rises to protect your profits?

In certain sectors, such as hospitality and care, where large numbers of staff employed at these low pay rates, it is likely that there will some fallout in the months to come as the effects are felt.

As far as the younger members of the population are concerned the National Minimum Wage is still in force at the following rates:

21 to 24 £6.70
18 to 20 £5.30
Under 18 £3.87
Apprentice £3.30

Call Brian Russell on 01661 872004 if you are concerned about the impact of the NLW on your business

About the Author

Brian RussellBrian Russell FCA is a Chartered Accountant with over 35 years of experience working with owner managed businesses in North East England. He formed Russell & Co in 2000 to build upon his experience to provide high quality part time financial directorships for smaller companies particularly in Newcastle upon Tyne and Northumberland. Russell & Co is based in Ponteland.View all posts by Brian Russell →