The National Living Wage: what does it mean for startups?

Since Friday April 1st 2016, employers have been legally required to move from the old minimum wage of £6.70 to the new National Living Wage of £7.20 (for employees aged 25 and above).

There are many arguments for paying a higher wage – such as greater staff retention and motivation - and as many businesses pay above this rate anyway, not everyone will be affected. But with companies as large as Pret a Manger raising their prices in order to make the change viable, how will this change things for many smaller businesses and new startups?

The small business owners

Hazel Merlino, founder of Leeds-based children’s play centre Rainbow Factory.  Here are her views on the matter.

"There are a number of issues that small businesses face with wage increases, such heightened national insurance contribution – or if they want to avoid paying any NIC then they will have to reduce the number of hours their staff work. then there’s additional tax, increased holiday pay etc. However as an employer we have a responsibility to look after our staff and therefore have to understand that there’s a reason for government guidelines, and that’s because people have to ‘live’.

“Some businesses like to pay above the national minimum wage/living wage anyway, to ensure they have a competitive edge and an additional benefit to being employed by them – plus, some businesses like to pay staff the same, so therefore the increase isn’t just for the 25 and overs. Rather it is attributed to all staff… and why shouldn’t it be!

“For us, we have been planning this increase since the announcement last year and actively encourage it."

Zara Neild is the founder of Zara's Cakes, a cake shop in Manchester. Here are her views.

"Although my business will take a massive financial hit with the increase as 80% of our employees are 25 and over, I believe it will boost staff morale. Luckily I'm two and half years into running Zara Cakes - as a start up it would have been impossible for me to afford to employ anyone 25 and over."

The business advisor

Nick Coates is the former owner of Brixton coffee shop Federation Coffee, and is now a member of the Virgin StartUp loan panel. Here's what he thinks of the introduction of the National Living Wage.

"On the face of it this seems like excellent news for people on minimum wage, but there could be some unintended consequences. It is unlikely that companies affected by this will be happy to make less profit as a result of the changes. The most obvious and easiest change these companies could make would be to pass the cost on to the consumer - I think this is probably what will happen either directly through an increase in price, or indirectly through a reduction in service or direct cost (portion size for example in restaurants).

"The other unintended consequence could be through job cuts - meaning not just unemployment for the unlucky ones, but those who are left will have increased workloads. If you look at the some of the sectors that will be most affected by this, the care industry for example, this will be absolutely catastrophic. It would have been good if the government had announced measures alongside this that would allow businesses that will be most affected to pay their staff more in a cost neutral way – a small portion of staff costs offset against VAT, for example.

"At Federation Coffee we always paid a living wage and we survived - so it can be done!"

What do you think about the introduction of the National Living Wage? Tweet us over on @VirginStartUp and have your say!

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