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Cautious thumbs up given to increase of minimum wage

10 min read

17 March 2015

Small and medium-sized businesses around the country, along with small business experts, gave a positive response to the government's announcement that there would be an increase to the minimum wage.

The National Minimum Wage will rise by 20p to £6.70 from October, the biggest real-terms increase for seven years. For apprentices, the rate will go up by 57p to £3.30 an hour, an increase of 20 per cent. This figure is higher than the 7p recommended by the Low Pay Commission.

The hourly rate for 18-20 year-olds will rise from £5.13 to £5.30, a three per cent increase, and by 8p to £3.87 for 16 and 17-year-olds, a rise of two per cent.

Some SMEs do not see the increase causing difficulties. “Wages have been fairly static since the financial crisis, so for SMEs, this is a fairly modest and affordable increase,” said Ian Baxter, founder of freight services provider Baxter Freight. “Some things have recently gone in businesses favour, such as the cost of fuel and the exchange rate with the euro, so this wage increase should not be too problematic for SMEs.”

The company offers services for international, European and domestic freight by road, sea, air or rail, from full loads to single pallets, cartons or packages, from standard to express. It currently has over 70 employees, with a target of 100 by mid-2015.

Baxter added: “Staff need to understand that if there’s a wage increase for someone on minimum wage, of £14,350, this will not necessarily translate across to someone on £25,000. Have mature, frank conversations with your staff to educate them on this fact.” At Baxter Freight, all staff over the age of 21 earn more than 18,000 and the company pays the Living Wage, rather than the minimum wage.

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“Raising the minimum wage is commendable and gradual annual increases should be welcomed,” said Paul Stricker, CEO of Boxman – an on-demand storage service company. “Whilst individual employers fear it, they need to realise that they are not alone and their competitors are all in the same boat. At Boxman we’re more focused on the London Living Wage so minimum wage levels don’t affect us directly. Even so, it’ll likely still have an indirect effect, feeding into higher prices from our various suppliers who are all UK based.”

“This is the biggest rise we’ve seen in seven years, and whilst Labour are claiming that it isn’t enough, I have to say that it is a start and about time too,” said Nick Swan, CEO of money-saving website www.VoucherCodesPro.co.uk, which employs 10 people. “When coupled with the fact that the average price of goods has been falling dramatically recently, it’s great news for the British public.”

Although Swan welcomed the increase, he advised other small businesses to consider how it could affect their finances. “For businesses, it’s important to ensure that you’re prepared for the minimum wage increase,” he said. “Whilst 20p an hour does not sound a lot, over the course of a year it could have a big effect on your business’ finances. It’s important to review your payroll to make sure you are meeting the new minimum wage and can upgrade accordingly.”

Mark Russell, CEO and founder of Optimus Performance Marketing, an affiliate marketing company said: “Determining what to pay is a complex mixture of factors – and is very difficult to determine in a knowledge-led industry like digital marketing where there are no defined structures and precedents to determine wage rates. As a company we have a very inclusive recruitment policy that takes into account aptitude, experience and an a willingness to learn as much as formal qualifications, vocational or otherwise – an increase in the minimum wage is certainly a welcome sign that the economy continues to grow.”

Some SMEs have gone further and are backing the Living Wage. Darren Fell, MD of Crunch Accounting, said: “At Crunch, we’re fully in support of the Living Wage, which for Brighton and Hove is currently £7.85, over £1 higher than the newly increased minimum wage of £6.70. We believe that paying a wage that your employees can actually live on is beneficial to your business, as well as your employees.

“As a knock-on effect of increased wages, which have been linked to increased happiness amongst staff, businesses will benefit from raised staff retention rates (it costs on average £30,000 to replace an employee), reduced absence and sickness levels, improved staff motivation and morale and attraction of better staff,” added Fell. “Of course, the concern for SMEs is that they won’t be able to afford this increase in pay. However, if we look to the living wage as a quantifiable example, we can see real evidence that paying staff more improves business processes and can even save money overall.”

Experts also gave the increase a cautious welcome. “The Low Pay Commission (LPC) has performed it’s job diligently, balancing the desire to raise the minimum wage against economic conditions and what employers can afford, so it’s important politicians continue to follow their recommendations,” said Edwin Morgan, head of media relations at the Institute of Directors (IoD).

“While the government has chosen to increase the apprentices wage ahead of LPC’s suggestion, there is an argument that we should be focussing on high-quality apprenticeships which give young people skills which increase their employability. The raise is unlikely to be too large a problem for companies as the median hourly rate for apprenticeships in the UK is actually £6.31 for entry level schemes.”

However, uneven enforcement of minimum wage legislation can put those businesses that do pay correct amount at a disadvantage, some experts warned. “The real problem for small and medium-sized businesses with the National Minimum Wage is not so much the rate as the weak enforcement regime,” said Jonathan Chamberlain, a partner at the employment team of solicitors Wragge Lawrence Graham & Co.

“It’s unfair on the many small and medium-sized businesses who work hard to stay within the law to have to watch themselves being undercut by those who don’t. If everyone paid the minimum wage, the impact for small and medium-sized businesses should be neutral to positive, but if they don’t then this sort of rise can hit the good guys hard. Better enforcement is better for everyone.”

Commenting on the issue, prime minister David Cameron said: “At the heart of our long-term economic plan for Britain is a simple idea – that those who put in, should get out, that hard work is really rewarded, that the benefits of recovery are truly national. That’s what today’s announcement is all about, saying to hard-working taxpayers, this is a government that is on your side. It will mean more financial security for Britain’s families and a better future for our country.”

Frances Grady, general secretary of the TUC, added: “With one in five workers getting less than a living wage, this is nowhere near enough to end in-work poverty. Britain’s minimum-wage workers should be very fearful of the billions of pounds of cuts to government help for the low paid that the chancellor is planning if re-elected.”

Last year a survey by the British Chambers of Commerce (BCC) revealed that 60 per cent of BCC members favoured a rise in line with inflation but just 14 per cent backed an above-inflation rise.

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