Family Business Report 2024: NMW increase may negatively impact more than 50% of businesses

Rising costs is one of the main challenges to business viability, with staff costs being the largest outlay for many.

The Government’s long-standing target on National Living/Minimum Wage (NMW) has been to ensure NMW is set at two-thirds of median hourly earnings by October 2024. The approximate 10% increase to the main rates last month, coupled with the extension of the top rate to 21 and 22-year-olds for the first time, should help the Government to achieve this aim this year.

Impact of rising staffing costs

While this is great news for hard-working staff, and should help to reduce in-work poverty, this increase to statutory minimum wages has brought some extra worry to business owners who are tasked with funding these changes. Armstrong Watson’s latest Family Owned, Privately Owned and Owner-managed Business Survey found that more than half of those surveyed believed April’s NMW changes will have a negative impact on their business, and 11% significantly so.

This is especially hard-felt in traditional sectors in our regions such as agriculture and also hospitality, leisure and tourism, where margins are tight and paying staff at, or around, NMW levels is commonplace.

For many businesses in these sectors, it will be difficult to pass on all/some of the cost of these wage increases to customers, and so the uplift in staff wages will have to be absorbed by the business in some way. There is also the knock-on effect of increasing salary expectations of other staff members too.

National Minimum Wage compliance

Paying the NMW rates is not the only challenge for employers. Understanding and complying with the complicated rules as to when something staff-related affects NMW remains a constant concern for businesses across all sectors.

HMRC remains very active in auditing NMW compliance across the country, particularly in low-paid sectors where compliance failures are common, but also increasingly in higher-paid sectors, focusing on ‘salaried’ workers. The management time involved in such an audit can cost a business dearly, and there can be significant financial and reputational damage caused if HMRC uncovers technical breaches of the law, even where the errors are completely innocent. NMW regulations are complex but it is important to ensure your business is compliant to safeguard it.

The proposed mandatory reporting of working hours through payroll from April 2025 will place even more focus on NMW compliance for all employers and will provide HMRC with more transparency on how arrangements such as employer-provided accommodation, staff deductions and salary sacrifice are being applied in relation to the rules on NMW.

Apprenticeship trends

The survey also found a dropping trend for businesses that use apprentices, compared to 2018, when Armstrong Watson undertook the last survey, however, for those businesses that have employed workers of this type, there has been an increased take-up of funding from the Apprenticeship Levy.

This is encouraging as many businesses consider the rules and qualifying conditions to obtain money from the Levy are too confusing and off-putting. Application of the rules around NMW for apprentices continues to be a key focus area for HMRC’s NMW compliance team.

Understanding family and owner-managed businesses

The survey received almost 500 submissions and 300 completed responses, with 39% of those based in Cumbria – the largest response from any region.

Family businesses are essential to the UK economy and contribute in excess of £630 billion to UK GDP, across 5.2m businesses. Armstrong Watson believes understanding what makes these businesses successful, the challenges they face, what their aspirations are, and how they plan to grow is crucial in order to support their longevity, stability and continued economic and societal contributions.

View the full report.