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Most small firms absorb the cost of wage increases

13th August 2019

Around 7 in 10 small business owners paid themselves less to absorb increasing employee wages this April, a survey by the Federation of Small Businesses (FSB) shows.

Following the national living wage increase to £8.21 in April 2019, 71% of business owners said they lowered their profits or absorbed the costs, while 45% increased prices.

Other options taken included delaying investment (29%) and reducing the hours worked by their staff (23%).

The Government's current target is for the national living wage to reach 60% of median earnings by 2020.

The Low Pay Commission (LPC) is consulting on the viability of this target, and how minimum wage increases have affected workers, employers, the labour market and the economy.

The FSB said it is "crucial" that the LPC maintains "a firm level of independence", and that its decision on setting the national living wage should not be dictated by political targets.

Mike Cherry, chairman of the FSB, said:

""We're now seeing more small business owners than ever saying that living wage increases are impacting their bottom line.

"Future increases to wage rates should be determined by an independent LPC basing recommendations on economic realities, not inflexible targets."

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