Sponsored Content: Small businesses set to see wage bills rise by 11pc in coming months

The lowest-paid workers in our communities have this month seen their hourly wage rise from £6.50 to £6.70 and from April 1 it will rise by a further 50p when the national living wage is introduced for over 25s.

In July, Chancellor of the Exchequer, George Osborne, delivering his summer budget, announced that the living wage would be brought in from April 2016 to replace the current national minimum wage for the over-25s, and revealed it would start at £7.20 per hour and rise in stages to £9 by 2020.

The changes mean those working full time will earn an extra £900 per annum in a move designed to soften the blow of reducing in-work benefits and ensure that it pays to be in work.

Small businesses however, could be left feeling the pinch.

“It is a pretty significant increase,” said Keith Senior, of Jacobs Allen Chartered Accountants and Chartered Tax Advisors. “Particularly for businesses in the early stages where growth tends to be reliant on employing people on the national minimum wage.”

The increase comes on the tail of the auto enrolment scheme, whereby all employers must make pension contributions for their workers.

“Auto enrolment will cost employers an additional 1pc on their wage bill in their first year and 3pc when it is fully implemented. The first stage of the national living wage represents a 10pc uplift over a matter of six months, with a further 25% by 2020 as the Chancellor’s promised future increases materialise.

“That could be an 11% increase in wage costs by April 2016 and a further 27% over the next four years, without any compensating productivity increases; that is a serious deterrent which may put businesses off employing additional staff or indeed keeping existing staff.

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“Those businesses employing people on the minimum wage tend to be in the retail, service, or sometimes agricultural industries. They probably have heard announcements that this is coming but maybe haven’t recognised the extent to which it will affect their profits.

“They will need to quickly address any changes they can make to the prices they charge their customers or look for other profit improvements if the success of their business is not to be compromised.”

For more advice on how to best plan for these rises, contact Jacobs Allen Chartered Accountants and Chartered Tax Advisors, based in Bury St Edmunds and Haverhill.