Whilst we are quite lucky here at SK Accountancy that the introduction of the National Living wage won’t impact us directly we are helping a number of our clients work through the impact it will have on them.
For someone employing staff of the National Minimum Wage it will have a profound effect on the business as in a two step approach over the next 8 months their basic wage bill is going to increase by 11% – this will mean that every employee they have working a 40 hour week will cost them an additional £1500 per year, which in an economy where inflation is virtually non-existent at present it will be very hard for them to recover such a cost from the end consumer.
One option that a client of ours is looking at is outsourcing jobs to the sub continent as a consequence, over recent years countries such as India had become less attractive as increased living standards had pushed up the cost of employment in these areas, however the impact of the National Living Wage is forcing a rethink in this area.
There are other ways that this cost can be offset, we are currently working with another client who is now evaluating the benefit of making all new appointments part time, or job shares as this will lead to a reduced bill for National Insurance Contributions which will partially offset the additional cost.
Whilst I wholeheartedly support the sentiment behind the government’s move, I do worry that it has been ill thought out, especially in respect of the knock effects it will have, some industries having more choice than others as to how they mitigate the additional cost, but I would fully expect to see reduced rates of recruitment as a consequence
If you owned a restaurant with 10 waiting staff and thought you could balance the books by only having 9 and keep costs the same you would do it wouldn’t you? With the same likely to be said for many other lower end jobs such as cleaning where there is an opportunity to stretch the quality of service slightly by employing less people to keep the cost the same.