Small Business Blog

Practical advice for startups, small and growing businesses. Interviews, features, opinion and commentary from journalists, bloggers and entrepreneurs who know what matters to SMEs.


The Ever-rising Minimum Wage

Employers can never afford to take their eyes off the National Minimum Wage if they want to avoid being caught out.

21st October 2014 at 8:15 am

Employers can never afford to take their eyes off the National Minimum Wage if they want to avoid being caught out. Every March the independent Low Pay Commission (populated by employer and employee representatives as well as academics) decides on a rate and reports to the government, which usually implements recommendations on 1 October (although it is under no obligation to).

From its initial implementation in 1999, when it was £3.60 per hour, the minimum wage has risen steadily to its current rate of £6.50. There have also been new categories such as apprentice rates and a rate for under-18s, which have also steadily risen.

While it might be instinctive to assume rises were to take account of inflation, this hasn’t always been the case. Up until 2009, all rises were above inflation, but between 2010 and 2013 they were below, rising once again to above-inflation in 2014 (just before a general election, coincidentally).

Still, for employers who do have minimum-wage staff, the minimum wage will always represent the wage floor, regardless of inflation or the performance of the company. Any company found not to be paying the minimum wage will be forced to back-pay wages. And if the problem has persisted for some time, the back-pay hit could be harder to handle because it will be payable at the current rate, not the rate that would have applied during the underpaid period.

Fortunately, there doesn’t seem to be much evidence of employers struggling to meet minimum wage increases. Peninsula Business Services, a company that provides HR support to mainly SMEs, has surveyed its advisers on their experience of the National Minimum Wage as part of its wide-ranging white paper on the subject of the minimum wage. They found scant evidence of companies struggling, or indeed of outsourcing their work to foreign nations to avoid paying the minimum wage. Of course, many of the jobs that do pay the minimum wage – such as hairdressing, security, shop work and cleaning – are not possible to outsource because of a need for a physical presence at the workplace.

But as the UK general election approaches, no doubt the minimum wage will continue to be debated. The Greens have already put their cards on the table, promising £10 per hour by 2020; Labour’s pledge is a much more moderate £8 by 2020. And with the “living wage” always ready to make an appearance in any political debate (and being supported by dozens of household-name companies), the debate will only get hotter, especially now that we’re supposedly returning to pre-crash levels of productivity, growth and unemployment.

Whether for legal, political or PR reasons, companies should always be aware of the debate surrounding the minimum wage. If we are entering a period where coalition governments are the norm, as commentators keep predicting, the views of minority players can be amplified.

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