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The rising wages impact on small business

Last month, it was announced that next April (1 April 2022) the National Living Wage and the National Minimum Wage are set to increase.

Subsequently, this has had a knock on effect with the Real Living Wage now being raised to £9.90 for the 300,000 employees whose employers have voluntarily joined the scheme.

The overall pay rise has been welcomed by younger workers, offering greater financial security for the 2 million people in UK on minimum wage, A significant group that was adversely affected by the pandemic. however, it has garnered some criticism, some saying the pay rise as effectively meaningless in the face of tax increases.

What does the rise in minimum and living wages mean for small businesses?

Well, it could impact UK SMEs that rely on students or part-time seasonal employees that prop up businesses in the retail, hospitality, and tourism sectors during busy holiday periods. The wage increase will ultimately inflate business overheads, eating into profit potential for SMEs still reeling from the damage caused by COVID.

Wages increases in 2022:

  • National Minimum Wage under 18s: - £4.62 to £4.81;

  • National Minimum Wage 18 – 20 years old: - £6.56 to £6.83;

  • National Minimum Wage 21 – 22 years old: - £8.36 to £9.18;

  • National Minimum Wage 23 years old plus: - £8.91 to £9.50;

  • Real National Living Wage: £9.90

With graduates looking to benefit the most from the wage increase, businesses that once benefitted from the knowledge and training of recently graduated young professionals might find themselves cut off from hiring affordable, skilled workers as they look towards companies that support the National Living Wage.

It could also result in small business being forced to operate with fewer staff, limit their opening times, or move completely to part-time only contracts. in order to keep the wheels turning, employers might have to change their seasonal employment plans, adjusting their hiring process to take on younger, unskilled workers and spending the time training them to circumvent the higher staff costs of older employees.

However, with the wage increase, we could see an increase in spending, particularly amongst younger professionals who, as trends suggest, have taken on the mantle of “Shopping Small” or “buying local” over the past year.

The potential for more disposable income amongst young spenders could benefit UK SMEs, particularly ones that have an online presence and meet important customers values gaining popularity, like sustainability and community involvement.



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