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Small businesses' profits affected by National Living Wage, FSB suggests

05 Sep 2016

New research by the Federation of Small Businesses (FSB) has revealed that more than half of small businesses have had their profits adversely affected by the National Living Wage (NLW).

The NLW, which was introduced in April, requires employers to pay employees aged 25 and over at least £7.20 an hour.

Data from the FSB’s Small Business Index for the second quarter of 2016 revealed that some 59% of small and medium-sized enterprises (SMEs) are absorbing NLW costs by taking lower profits.

The research also suggested that 47% of these businesses now consider wages to be the main contributor in the rising cost of doing business.

The FSB has called for the Low Pay Commission (LPC) to be given flexibility on how to meet the Government’s NLW target of 60% median earnings by 2020.

Mike Cherry, National Chairman of the FSB, commented: ‘Small employers have stretched to meet the challenge set by the NLW, with many paying their staff more by reducing operating margins. This will get harder for many firms in later years, with the targets set in a ‘pre-Brexit decision’ economy.

‘Considering the uncertain economic climate, the LPC must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation.

‘The rate of the NLW should be set at a level the economy can afford, based upon economic and not political priorities.’

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