Following the introduction of the National Living Wage, small businesses must make sure they are fully prepared to face the challenges this new legislation will bring. More than £11 billion has been added to the UK’s national wage bill as organisations are required to pay at least £7.20 per hour to every member of staff over the age of twenty-five. Without careful planning and clever management this could signal tough times ahead, but it also creates an opportunity.
SMBs face different challenges to larger organisations as a result of this legislation. Organisations including small retailers, contract cleaning firms and catering companies - businesses with traditionally tight margins and employees on low wages - have to find ways to absorb the extra payroll costs, while operating in highly competitive environments. The reality is that this change will not be easy, but neither should they be considered entirely negative. The arrival of this legislation should be viewed as an opportunity to step back, focus on current processes and drive change in the business to support a more effective way of working.
Invest to Grow
Labour is the biggest individual outgoing for any business so payroll is the natural place to start when looking to control costs. Consequently, improving workforce productivity and efficiency as early as possible is critical to counterbalance rising wages. For small businesses, a priority will be managing risk as they need to increase productivity in order to compete and grow. This is why controlling costs is so important and where workforce management really comes into its own. Small businesses have to do more with the people they have as they work to compete and grow.
While no organisation can afford to lose money through payroll errors, the risks for small businesses are even greater. Around £30.5 million is lost annually through overpayment according to a report from the London School of Economics and Policy Analysis Centre, so it is business critical that workers are paid accurately. Pay your workers too much and you reduce already tight margins. On the other hand, not paying a fair wage on time will have a negative impact on staff morale and productivity. With smaller workforces unable to absorb the impact of unproductive staff and being highly reliant on keeping the best employees, being vigilant with payroll is essential.
Technology has a strong role to play in automating the processes that will ensure payroll is managed effectively. But, it also enables organisations to plan, schedule and monitor workforce activities more accurately to enable tighter control of hours and curb excesses such as unnecessary overtime. Once these basic practices are implemented effectively, businesses can look more closely at increasing engagement for the long-term through initiatives such as employee self-service.
By using technology effectively, data becomes a business tool, delivering greater visibility of the workforce leading to a fairer, transparent and more accurate pay system. This gives greater control over costs and allows the HR department to influence productivity.
By putting this data to work, a small business has greater control over where and how money is being spent, which becomes even more important when complying with new regulations like the National Living Wage. Eliminate these inefficiencies and the workforce will be both confident and reassured about the ongoing success of the business as they receive a fair wage for a fair day’s work on time.
Time is of the Essence
Accurate time recording is the very foundation of any initiative to drive efficiency. With a host of critical elements demanding the attention of small business owners, managing time and attendance records might not get the attention it deserves. Using workforce management technology to automate this process makes a big difference, especially in a small business where absences can have a major impact.
HR is an important cog in the machinery of any organisation, but in smaller enterprises the responsibility may come down to only one person, so making processes slick and effortless has an even bigger impact than it might in a larger organisation.
Empowering people by giving them access to their own payroll data, work schedule, holiday calendar and time tracking reduces some of the burden on HR. Freeing up this time allows more focus on critical work that has a bigger influence on the success of the business.
Delving into Data
Paying higher wages alone doesn’t lead to increased productivity, but using technology and tools to pay people correctly and drive wider engagement can. If businesses make effective use of the data at their fingertips to plan, schedule and monitor the workforce, they can minimise the impact of the new wage rates and ensure it delivers a positive return on their bottom line.
Small businesses need to counterbalance increased wages by making cost savings through efficiency and productivity and smaller, more agile organisations should be at an advantage in being able to make these changes quickly. Having better visibility of how your workforce operates is instrumental in identifying precisely where the changes need to be made. The effectiveness of these changes will determine whether the legislation can be turned into a positive for your business and, as a result, the UK economy as a whole.