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How small businesses can afford national minimum wage rise

Paying employees a fair wage shouldn’t be a controversial topic, but it is. While there is little excuse for firms at the larger end of the SME scale not applying the national living wage, it is more understandable that small businesses are finding it harder. Alternative finance can help them comply with the legislation.

The national minimum wage is reviewed annually and, in April, it rose to £7.83 for over 25s, to £7.38 for those aged between 21 and 24, and to £5.90 for 18 to 20-year-olds. Three months down the line and the national press is reporting that about 22,400 workers are owed back pay worth £1.44 million, and naming and shaming companies that have failed to implement the rise.

The number of firms that have underpaid staff is put at 240 across the industry spectrum and according to national newspapers includes the likes of the Odeon cinema chain, the Card Factory, Home Bargains, Sussex and Durham cricket clubs, Newcastle Falcons rugby club, Bristol City and Doncaster Rovers football clubs, and the Navy, Army and Air Force Institute (Naafi). Employees at Ryanair have also called for a fair living wage.

The scale of this underpayment perhaps reflects the challenging nature of market conditions and pressure on already thin margins but, at the same time, it is difficult to understand why big firms and even those larger SMEs have failed to implement the rise in the national minimum wage. No doubt exposure in the national press will see many quickly rectify the error.

However, the picture is not so clear for small businesses, for which a rise in wage costs can have a greater impact on overall financial health. It is possible to have a more forgiving attitude to small firms that are less insulated against the impact of the increase and can honestly claim to not know if they can afford it.

So, how, at a time when they are faced with a multitude of policy-related and non-policy-related costs, can small business owners afford to pay more in wages? Alternative finance can help. More and more small businesses are using the likes of invoice finance, asset finance, peer-to-peer lending and crowdfunding to access start-up funding, raise funds for investment and get their hands on capital to safeguard cashflow.

This is how a small business in Sussex used peer-to-peer lending, through a commercial finance broker that specialises in alternative finance, to get the money to buy new equipment.

Just as these services can be used to renew equipment, alternative finance can be used to help ensure that the financial resources are in place to pay staff according to national living wage legislation. With the threat of HMRC fines looming large, failing to do so clearly represents a false economy.

While it is possible to see a mandatory rise in wages as another untimely increase in running costs, employees must be paid a fair wage. One way for small businesses owners to manage the increase is to make sure that they are aware of all the finance options available to them, including alternative finance.

To find out more about A&T Business Associates services, contact Tony on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.

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