SME profitsAccording to new research, 64% of small businesses are seeing profits fall as a result of the national living wage (NLW) increasing.


On the 1st of April 2017, the NLW increased from £7.20 to £7.50 per hour. While this is great news for employees, its hitting small and medium enterprises hard.

Out of 835 businesses surveyed by the Federation of Small Business (FSB), 39% have had to put up their prices in order to cope with the increase.

Furthermore, almost one in four (24%) were forced to either cancel or downscale investments while 22% reduced working hours and 19% hired fewer employees.

43% of businesses increased wages in line with the NLW – suggesting that the majority of owners are already paying their workers above the new rate.

Mike Cherry, national chairman at the FSB, said:

“Small businesses owners have demonstrated their resilience in meeting the challenge set by the NLW, with many cutting their margins or paying themselves less to pay their staff more.”

He continued:

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

Dealing with the wage rise

If you’re struggling to cope with the national living wage increase, some great ways that small and medium enterprises can manage the costs include:

  • Increase productivity so you’re getting more out of your employees
  • Streamline your processes so they’re more efficient
  • Pass on additional costs to your customers so you don’t have to take the burden yourself


Please be aware that if you fail to pay staff the NLW, you will face a fine based on the underpayments.

The penalty for firms which do not comply with the NLW is 200%, although this will be halved if employers pay within 14 days. The overall maximum penalty is £20,000 for every underpaid worker.

If you would like more information about the NLW, please feel free to contact PKB Accountants and we will be more than happy to help.


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