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Diminished Bottom Lines: National Minimum Wage Increase 2024

blog feature image - national minimum wage increase 2024

On April 1st 2024, the National Living Wage (NLW) and National Minimum Wage (NMW) will again increase in the UK. The National Minimum Wage was established in 1999 whilst the National Living Wage was announced in 2015 specifically for the over 25s but has since been extended to anyone 23 or older. The National Living Wage is always higher than the National Minimum Wage and all employers have to pay the correct minimums by law, no matter their size. The NLW is the minimum hourly rate that employers must currently pay to workers aged 23 and over in the UK and the NMW is the minimum that must be paid to workers under the age of 23. 

The government reviews these rates and thresholds each year with the aim of protecting employees from unreasonable and unfair compensation. In setting these rates they look at cost of living, listen to the input of business owners and trade unions and work with organisations such as The Living Wage Foundation to negotiate the National Minimum Wage each year and further, set a National Living Wage that is a target percentage of median wages. 

On April 1, 2024, the higher of the two mandatory minimum wages, the National Living Wage, will not only increase but has to be paid to employees of 21 and over rather than 23 and over, therefore increasing the payroll burden on UK businesses.

National Minimum Wage Increases for 2024

Below are the revised statutory minimum wage rates that come into effect on April 1 2024. They represent a substantial rise from current rates. The increase in the National Living Wage for over 21s in 2024 will be a bigger percentage increase year-on-year than the 2023 hike for the NLW age group (9.8% Vs 9.1%). 

While this increase is intended to improve the standard of living for low-wage workers faced with a cost-of-living crisis, it can put pressure on businesses, especially those operating on tight profit margins.

UK-national-minimum-wage-rates-for-2024

Source: Gov.uk. Accessed 25.03.2024.

2023 changes to minimum wage were previously the biggest increases since a National Minimum Wage was introduced and there was hope that inflationary pressures might have eased this year – this unfortunately hasn’t been the case and in fact many other costs also continue to rise. Many business owners will be concerned about the impact of these latest wage increases on their bottom line and may need to find ways to offset the additional payroll bill. Here are some of the strategies that could help small businesses cope with the pay increase; 

Increase Prices

One of the most straightforward ways to offset the cost of the NLW increase is to raise prices. However, this can be a delicate balance, as raising prices too much can drive away customers. It’s essential to research the market and competitors to determine a reasonable price that won’t negatively impact sales. Alternatively, offering discounts, bulk or multi-product promotions could increase average order values and lessen the blow of wage increases without passing on the cost to customers. 

Unfortunately increasing prices won’t be a viable solution for all businesses. In many industries, a business will sign lengthy contracts with customers tying them into fixed prices for months or years; passing on wage cost increases simply isn’t an option in these cases. Fixed-price contracts can be common in such industries as healthcare, professional services, transport and waste management. As the price paid for products and services in a fixed-price contract is predetermined and remains the same throughout the agreement, businesses can quickly find themselves having to absorb costs due to external factors outside of their control. 

Cut Costs

Another way to offset the cost of minimum wage increases is to cut costs in other areas of the business. This could be through renegotiating contracts with suppliers, finding more cost-effective ways to operate or reducing unnecessary expenses. It’s crucial to review all aspects of the business and identify those areas where costs can be reduced without negatively impacting the quality of products or services. 

Increase Productivity

Increasing productivity can help businesses cope with wage increases by getting more work done with the same number of employees. This could involve implementing new technologies, streamlining processes or providing additional training to employees. Hopefully, by reducing inefficiencies and increasing productivity, businesses may be able to offset higher labour costs without having to cut jobs or reduce hours.

Diversify Revenue Streams

Relying on one source of income or having a high customer concentration can be risky for any business, especially when facing additional costs. To mitigate risk, businesses can try and diversify their income streams. This could include expanding into new markets, offering new products or services or targeting a different demographic. By diversifying, overall revenue can be increased and higher wage bills mitigated. 

Automate Processes

Automation can help businesses reduce labour costs and increase efficiency. By automating repetitive tasks, businesses can free up employees to focus on more critical tasks, reducing the need for additional headcount.  

Finding the Right Strategy for Dealing with Increased Wages

Small businesses and certain industries can be particularly susceptible to cash flow challenges caused by rising labour costs. Price increases may not be feasible but there are strategies that can help to offset higher wages and ensure the business continues to thrive. It’s essential to plan ahead and make adjustments to ensure the business remains profitable.

If you’re worried about the impact of these additional costs on your profitability or need funding to help you invest and reduce costs in other areas, contact our team for a chat. We’re helping other small businesses to navigate rising costs and continue to grow and succeed by using non-traditional finance methods such as invoice factoring. 

Invoice factoring is a flexible financing option that grows with the needs of the business. As sales increase and more invoices are generated, the amount of financing available through a factoring facility also typically increases. This type of scalability can really help businesses manage growing wage costs as they themselves grow. Whilst the business climate is tough and the incoming National Minimum Wage increases make it that bit tougher, we know business owners are resilient and we’re accustomed to navigating tricky cash flow situations – together we grow! 

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