National Living Wage is impacting the bottom line for small businesses

Three in five small businesses have reported that their bottom line has taken a hit as a result of the National Living Wage, according to new research.

The Federation of Small Businesses (FSB) found that 59% said they had absorbed the costs of the new wage – implemented in April – by taking reduced profits.

FSB’s 2016 Q2 Small Business Index revealed that 47% of firms now list wages as the main contributor to rising business costs.

The FSB wants the Low Pay Commission to have greater flexibility over how to meet Government targets, and has suggested the 60% target of media earnings by 2020 should be adjusted if it is clear the economy cannot cope with the rise.

Under current projections, the National Living Wage will go up by £1.85 per hour over the next four years, topping £9 by 2020.

While many firms are paying above the current rate of £7.20, a third said that the new wage had seen them increase their wage costs and one in five said labour costs had also risen drastically.

Of the later, nearly 60% said that absorbing the costs out of their profits was a solution, although it could ultimately place pressures on their finances.

Alternative finance options do exist for those facing such pressures while a business may also wish to undertake an independent business review if it is wishing to secure its future.

The FSB also revealed that firms had taken other approaches in order to safeguard their futures, with 35% increasing their prices and 24% reducing staff hours.

Cutting investment and recruiting less staff were also processes carried out by 23% and 16% of firms respectively in order to cope with increased wages.

Those most affected by the National Living Wage were found to be the sectors where low wages and operating on tight margins are common, including in retail, hospitality and wholesale.

By Phil Smith

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