National Living Wage 2020 Higher Than Expected

January 3, 2020

Despite, the UK Government document titled “The National Living Wage Beyond 2020“, published in November 2019, stating, “Reaching an NLW target of two-thirds of the median wage will require sustained large annual increases in the wage floor. The size of these increases will depend on the end-date which is set for a target, but even over a ten-year period the size of the increases required may still be over four per cent a year”, the 6.2% increase to £8.72 for over 25 year olds, will have shocked a number of businesses.

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How Will The National Living Wage Increase Affect Companies?

April 2020 will see further increased costs for all companies, but especially within industries where yearly service contracts are based on wages. Many finance departments will have planned for a 4% increase, but maybe not 6.2%. Everyone, no matter what their income, will notice an increase in personal and business costs whether using the services of children’s nurseries and minders, cleaning companies, hospitality providers, logistics companies, carers, product manufacturers or construction and maintenance companies to name a few.

Should Price Increases Encourage Changing Service Providers?

When faced with price increases, the temptation can be to change providers for a cheaper rate. It is important to remember however that all companies will be affected by this increase. If someone isn’t putting their prices up in line with the 6.2% increase, they will be putting their business at risk. Although some companies make enough profit to swallow these increases for a period of time, or due to foreign labour on imported products minimising the impact, the majority of minimum wage service industries make very little margin at all. Swallowing these wage increases is just not an option if they are to continue providing a comparable service or intend to stay in business. If you are unable to afford an increased cost, it is worth having a conversation with your current service provider to see if the service can be amended or reduced. This may require some thinking outside the box or investing in other areas to minimise ongoing cost.

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