In a bold budget yesterday, George Osborne at one stroke stole the wind from the Opposition sails by announcing a new ‘National living wage’ for the over 25’s increasing from £7.20 per hour from April 2016 to £9.00 in 2020. At the same time benefit cuts will be introduced to encourage those into work. This is a clever and logical way to move the cost onto businesses that, it could be argued, have benefited from low wages since the minimum wage was introduced. To support the additional cost for employers, NI charges will reduce by £1,000 per year enabling four staff on the living wage to attract no NI costs. Whilst this all seems good, the changes will have a significant impact on a number of SME businesses especially in areas such as the South West who focus on catering, tourism and agriculture. Faced with declining margins, businesses will have to think very carefully before employing additional staff currently on the minimum wage, as over the next four years the real cost will increase by some 34% before any NI benefits. If one also takes into account the changes in the taxation of dividends (a favourite way for SME owners to pay themselves) these businesses will be further impacted.
UK productivity has fallen further behind many competitors over the last few years and maybe the minimum wage has been a factor. The value produced per employee now has to be a vital factor in any businesses calculation going forward, and increases in productivity will be essential to pay for the increased cost of employment. This is an excellent time to review staffing, who does what, and crucially are there better ways to do things? I have experienced too many businesses where staff are doing jobs that they have done the same way for many years, and when questioned why they are doing a task in such a way answer, ‘well I have always done it like this’! Factors such as training and motivation, focus and customer orientation, should also be built into the mix when reviewing the workforce and how things get done.
At Strategy Boxed we don’t just produce strategies for business, but can also advise on whether your business is getting the most out of your most expensive asset, your people. When did you last review processes and people and whether they are working in the most efficient way? If you haven’t done recently, there will be a clear reason to do so over the next few years.