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How the Highest Minimum Wage Increase will Impact Your Business

27th Mar 2024
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The UK is set for the largest-ever cash increase in the national minimum wage starting in April 2024. The National Living Wage (NLW) will rise to £11.44 for workers aged 21 and over. This has sparked debate about its potential impact on businesses and the overall economy. This blog explores the potential benefits and drawbacks of minimum wage increase for both businesses and the broader economy.

Highest Minimum Wage Increase in the UK.
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While the policy aims to improve worker well-being, particularly in low-wage sectors, the impact of this change on business and the overall economy is debated. Businesses are confronted with the prospect of absorbing the additional costs of the wage increase, potentially unable to shift them to customers. On the flip side, the surge in purchasing power is anticipated to boost demand, potentially triggering inflationary effects on the broader economy.

Understanding the UK minimum wage increase

The UK government has agreed to implement the recommendations made by the Low Pay Commission, resulting in an increase in the minimum wage from April 2024. Individuals aged 21 and over will be eligible for the National Living Wage (NLW), while the minimum wage will also increase for other age categories. Please refer to the table below to view the UK's minimum wage per hour for different age groups.

Highest Minimum Wage Increase in the UK.
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Implications for Business and the Economy

The impending increase in the UK's National Living Wage (NLW) poses a significant challenge for businesses. The policy change might significantly impact industries like accounting, which relies heavily on human resources. The increase in minimum wage translates to higher operational costs, forcing firms to either absorb the increase or adjust their pricing strategies—a delicate balancing act that could impact profitability and client relationships.

Small enterprises might struggle to absorb the additional costs related to the wage increase without passing them on to customers. They find themselves navigating a complex landscape of regulatory compliance, pricing struggles, and the critical need for immediate survival and long-term resilience. The prospect of potential job losses and inflationary pressures looms large.

Looking beyond the immediate concerns for businesses, the wage increase introduces a dynamic variable that ripples through the broader economy. The expected increase in workers' purchasing power may lead to a surge in demand for goods and services. While this presents a potential short-term.
 

Coping with the challenges

The minimum wage increase will likely add costs for small businesses and accountants, and it is prudent to start working on strategies to address these challenges.

  • Reviewing operational efficiency: Businesses can strategically review their operational processes to identify areas for improvement. Streamline operations by outsourcing tasks to reduce costs, access global talents and scale effectively.
     
  • Re-evaluating pricing strategies: Adjusting pricing strategies can help businesses offset the impact of the minimum wage increase. Rather than implementing across-the-board price increases, businesses can strategically raise prices on selected products or services where the perceived value justifies the adjustment. Additionally, offering value-added services or exploring new revenue streams can help diversify income sources and cushion the impact of increased labour expenses.
     
  • Upskilling and investing in employees: Investing in employee training and development enhances productivity and justifies higher wages. It can also help businesses tackle the talent gap in the sector. By providing opportunities for upskilling and professional growth, businesses can empower their workforce to take on more responsibilities and contribute to organisational success. This can ultimately lead to a more skilled and motivated team capable of driving revenue growth and innovation.
     
  • Exploring automation: Automation enables businesses to streamline operations, reduce dependency on manual labour, improve efficiency, and attain scalable growth. In service sectors like accounting, historically marked by labour-intensive tasks, incorporating automation tools such as Receipt Bot is pivotal. These tools optimise productivity and accuracy by automating tasks like accounting data entry while fostering scalability.

Conclusion

We believe that the UK's minimum wage increase, while well-intentioned, presents a challenge in the low-wage sector. Government support for vulnerable small and medium-sized enterprises (SMEs) is crucial to ensure the policy's long-term success. Additionally, sectors with high labour intensity, like accounting, may require tailored interventions. Ultimately, the key lies in fostering a more productive workforce and leveraging technologies to manage costs and improve productivity.