SMEs sacrificing profits to pay National Living Wage, survey finds

Nearly two thirds of small British businesses affected by the introduction of the National Living Wage have cut back their profits to cover the cost, according to a new report.

A survey by the Federation of Small Businesses (FSB) found that 64 per cent of small firms have taken a hit to their profits in order to pay their staff more.

39 per cent of businesses have put up their prices in order to cope, 24 per cent have scaled back or cancelled their investment plans and 22 per cent have reduced staff hours.

19 per cent have hired fewer workers, but less than four per cent have hired more workers under the age of 25, who are on a lower pay rate.

The government’s National Living Wage increased hourly pay to £7.50, and it is expected that it could rise as high as £8.75 by 2020.

The FSB survey found that while the majority of small businesses were already paying staff above the National Living Wage, 43 per cent had to increase wages to meet it.

“Small employers have demonstrated their resilience in meeting the challenge set by the National Living Wage, with many cutting their margins, or even paying themselves less, to pay their staff more,” said Mike Cherry, national chairman at the FSB.

“In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW. It’s vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation.

“Cost pressures on small businesses are building, and with most recent economic indicators underperforming, we are now facing the reality that the NLW target may need to be delayed beyond 2020.

“To prevent the growing costs of employment from stunting job creation, the government should use its Autumn Budget to uprate the Employment Allowance and focus it on the smallest employers.”

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