Main Points
Before I start this post. I want to be clear that in no way do I believe that anyone should be underpaid for the job they do.
At Kimon we pay about 20-25% over local market rate for all our employees but I am struggling to get my head around how small UK businesses are supposed to achieve the new minimum wage without either reducing the total number of staff or making a loss.
Let me break this down:
The numbers the government published are misleading when you look at the total cost to business
Below you will see a screenshot of gov.uk as it is at the time of writing this (July 2024)
( https://www.gov.uk/government/publications/minimum-wage-rates-for-2024 )
They are promoting that the increase is 9.8%… which is misleading at best. The £1.02 increase is based on £10.42 which is actually the NMW for over 23’s before the rise.
Those over 21 actually got a £1.26 rise from £10.18 which is 12.38%
Even if we assume that is all well and good, the ACTUAL cost to business is a 30.71% rise!
| Cost Component | Before Rise (£) | After Rise (£) | “New profit needed” per employee |
| Hourly Wage | £10.18 | £11.44 | |
| Weekly Wage (40 hours) | £407.2 | £457.6 | £50.40 |
| National Insurance (13.8%) | £22.83 | £29.78 | £6.95 |
| Pension Contribution (3%) | £12.22 | £13.73 | £1.51 |
| Total Weekly Cost | £442.25 | £501.11 | £58.86 |
| Total Monthly Cost | £1,913.94 | £2,169.80 | £255.86 |
| Total Annual Cost | £22,791.40 | £26,057.72 | £3266.32 |
To be clear…. The UK government expects every business in the UK, no matter the size to find an additional £3266.32 EVERY YEAR FOR EVERY MINIMUM WAGE EMPLOYEE!
This scales in a super scary way when you look at it in as example of a small retail operation with 5 full time staff
| Age Bracket | Cost Component | Before Rise | After Rise | Increase per Employee | Total “New Money Required” for 5 Employees |
| Over 23 Years | Weekly Cost | £453.45 | £501.11 | £47.66 | £238.30 |
| Monthly Cost | £1,962.65 | £2,169.80 | £207.15 | £1,031.79 | |
| Annual Cost | £23,551.80 | £26,057.72 | £2,505.92 | £12,391.60 | |
| 21 Years Old | Weekly Cost | £442.25 | £501.11 | £58.86 | £294.30 |
| Monthly Cost | £1,913.94 | £2,169.80 | £255.86 | £1,274.31 | |
| Annual Cost | £22,791.40 | £26,057.72 | £3,266.32 | £15,303.60 |
I fail to believe that if there was an extra £15,303.60 of profit laying around, that any business would not have already chased it and invested it into the business. Despite what a lot of people think, there aren’t a lot of businesses that are sitting on a war chest full of cash that they can easily dip into to pay the higher salary.
It was announced in November 2023 and effective from April 2024 meaning businesses only had about 4 months to find the cash
When the new minimum wage was announced in November 2023 and set to kick in by April 2024, it left many UK businesses in a bit of a scramble. With just four months to adjust, small businesses, in particular, are finding it tough to figure out how to cover the increased labor costs. This quick turnaround raises several questions about how fair and doable this rapid change really is.
Not Enough Time to Prepare
One of the biggest hurdles is the lack of preparation time. Normally, businesses plan their budgets well in advance, taking into account all sorts of operational costs, including wages. No business can adapt that quickly and yes, I know we all plan for inflationary costs and increased wages but no-one plans for a 30% jump in employee costs with 4 months notice! It is a major disruption. This short lead time doesn’t give businesses enough time to tweak their pricing strategies, renegotiate contracts, or find other ways to boost revenue.
Cash Flow Crunch
Cash flow is always a critical issue for small businesses, which often operate on tight margins without large cash reserves to fall back on. A sudden spike in wage costs can trigger a cash flow crisis, forcing businesses to make tough choices like reducing staff hours, laying off employees, or, in the worst cases, shutting down. These measures can hit employee morale and productivity hard, making the financial strain even worse.
Raising Prices Isn’t Easy
One way to cover higher costs is to raise prices, but that’s not always a realistic option. Many small businesses are in fiercely competitive markets where increasing prices could drive customers away. During economic uncertainty, consumers are especially price-sensitive, making it tricky for businesses to pass on the higher costs without hurting sales. This is particularly true in retail and hospitality, where price competition is intense and profit margins are already slim.
Limited Access to Finance
Securing extra funding quickly is another big challenge. Small businesses often struggle to get loans or additional funding at short notice. Banks and financial institutions might be reluctant to lend to businesses facing higher operational costs without a clear plan to stay profitable. Even if businesses do secure loans, it adds to their financial burden with new repayment schedules to manage alongside higher wage bills.
Potential Workforce Reductions
With increased wage costs, some businesses might have to cut down their workforce. This doesn’t just affect employees’ livelihoods; it also impacts the business’s ability to run smoothly. Fewer staff can mean longer hours for the remaining employees, lower customer service quality, and ultimately a drop in business performance. For many small businesses, every employee plays a vital role, so losing even a few can have a big impact.
It is not surprising that every day we are seeing more and more businesses contact us to explore our admin outsourcing services so that they can free up their (now expensive) UK resource to do more profitable work.
What Is The Employee Take On The Raise?
From the employees i’ve spoken to in various different industries, the recent minimum wage increase brings a mix of relief and concern. On one hand, the higher wage is a welcome change for many, particularly those struggling to keep up with the rising cost of living. One guy I spoke to is a 21-year-old retail worker, he needs the additional income to help cover essentials such as rent, groceries, and transportation.
However, the wage hike also brings a sense of uncertainty. Employees seem to be acutely aware of the financial strain this imposes on their employers. There is a growing concern about job security, as businesses might resort to cutting hours or even reducing staff to cope with the increased costs. For employees, this creates a stressful environment where the benefits of a higher wage could be offset by the risk of reduced job stability.
Furthermore, the increased wage expectations can lead to higher workloads. Businesses are there to make money else the owners will simply close it down so they may ask employees to take on more responsibilities or work longer hours. This can lead to burnout and decreased job satisfaction, which ultimately affects employee morale and productivity.
There’s also the broader economic perspective to consider. Higher wages can contribute to a healthier economy by increasing consumer spending. Employees with more disposable income are likely to spend more, boosting local businesses and potentially creating a positive economic cycle. This benefit, however, hinges on the delicate balance of ensuring businesses can sustain these higher wages without resorting to drastic cost-cutting measures. Which, lets be honest with all the other inflation flying around the balance is definitely not there and is not on the side of UK small businesses.
What Can Businesses Do About It To Survive?
Outsource Administrative Work
One of the most effective ways to manage increasing employee costs is to outsource admin tasks to specialised service providers like Kimon Services (from only £800 + VAT for a full time admin employee). By outsourcing tasks such as customer support, payroll, bookkeeping etc, businesses can free up their UK-based staff to focus on core, revenue-generating activities.
This shift not only enhances efficiency but also ensures that the current team is working on tasks that directly impact the bottom line. Kimon Services offers tailored solutions that can help streamline your operations, reduce overhead costs, and improve overall productivity.
Optimise Operational Efficiency
Take a close look at your current processes and identify areas where you can improve efficiency. Implementing lean management techniques can help eliminate waste and streamline operations. Consider adopting new technologies and software solutions that automate repetitive tasks and reduce manual work. This can lead to significant time and cost savings, allowing your business to operate more smoothly and efficiently.
Review and Adjust Pricing Strategies
While raising prices might seem risky, it can be a necessary step to cover the increased wage costs. Conduct a thorough market analysis to understand your customers’ price sensitivity and adjust your pricing strategy accordingly. Consider introducing value-added services or premium products that can justify higher prices.
Transparent communication with your customers about the reasons behind price adjustments can help maintain their trust and loyalty.
Enhance Employee Productivity
Invest in training and development programs to enhance your employees’ skills and productivity. A well-trained workforce is more efficient and capable of handling a broader range of tasks, which can offset the higher wage costs.
Additionally, fostering a positive work environment and offering incentives for high performance can motivate your employees to contribute more effectively to the business.
Explore Alternative Revenue Streams
Diversifying your income sources can provide a buffer against increased employee costs. Explore new product lines, services, or markets that align with your business strengths.
E-commerce, for example, offers opportunities to reach a wider customer base without significant additional costs. By expanding your revenue streams, you can create more financial stability and resilience against economic fluctuations.
Negotiate with Suppliers
Revisiting and renegotiating terms with your suppliers can help reduce costs. Bulk purchasing, long-term contracts, or exploring alternative suppliers can lead to better pricing and terms.
Building strong relationships with your suppliers can also open up opportunities for discounts and more favourable payment terms, which can ease cash flow pressures.
