Minimum wage hike will wreak maximum havoc

Warns business finance specialists Bibby Financial Services

Government plans to raise the National Minimum Wage by almost 16 per cent to 4.85 in October next year will spell danger for Britainís struggling small business sector. Thatís the stark warning from Bibby Financial Services, the UKís leading independent business finance providers.

A recent survey by Bibby Financial Services found that according to 60 per cent* of small business owners and managers, compliance with minimum wage regulations to date has already cost them up to 10,000. A further 3 per cent reported that last yearís minimum wage hike has cost them between 11,000 and 20,000 ñ amounts that cash strapped small firms can ill afford.

Commenting on the latest increases, David Robertson, Chief Executive of Bibby Financial Services said, ìOnce again, the Government is imposing yet more burdens on the 3.7 million small businesses that make up the backbone of the UK economy by sanctioning further cost increases.

ìThis yearís planned hike from 4.20 an hour to 4.50 in October is way above the annual rate of inflation, currently running at 4 per cent, and almost double the average earnings increase. A further increase to 4.85 next year will be another nail in the coffin for UK enterprise and will ultimately spell the end for many small businesses struggling to make ends meet.


ìThe repercussions for the small business sector are huge ñ not only will this cost jobs and squeeze profitability, but may result in businesses taking on less experienced employees as a result.

ìThe minimum wage hike combined with the 10 per cent increase in National Insurance Contributions which came into effect on April the 6th could be what breaks the camelís back. The Government needs to ensure that the minimum wage is capped at a realistic level to protect small firms trying to keep their heads above water.î

In order to help small businesses keep on track with the latest National Minimum Wage regulations, Bibby Financial Services has developed the following fast facts:

(1) From October 2003, the National Minimum Wage for workers aged 22 or over will rise from 4.20 an hour to 4.50. Workers aged between 18 and 21 will see their pay packet rise from 3.60 an hour to 3.80.

(2) The Government proposes to increase the National Minimum Wage further in October 2004 to 4.85 for workers aged 22 or over and 4.10 for employees aged between 18 and 21.

(3) There is no opt-out clause from the National Minimum Wage - you must pay it regardless of staff performance. Dismissing an employee to avoid paying the minimum wage is automatically seen in the eyes of the law as unfair dismissal.



(4) The minimum wage applies not only to employees, but also to casual staff, agency and home workers and affects all businesses, regardless of size, location or industry sector.

(5) To calculate whether your employees are paid the NMW you must identify the pay reference period (up to a maximum of a month) and divide the total pay for that period by the total hours worked during it.

(6) Overtime and other premium payments cannot be included when calculating the NMW, nor can the value of most perks associated with the job.

(7) Employers must keep records, retained for at least three years (although if possible for longer, as employees have six years to bring civil claims) to demonstrate that all workers are paid at least the NMW.

(8) The Inland Revenue who enforce the NMW has the power to demand, inspect and copy records, enter premises and interview employees.

(9) Workers can recover underpayments in the employment tribunal or county court. There is a presumption that the claimant was underpaid and it is up to the employer to prove otherwise.

(10) Be warned - penalties for breaches of the regulations can be high - failing to pay the National Minimum Wage, failing to keep adequate records, keeping false records and obstructing an enforcement officer are all separate criminal offences. Failure to comply can lead to unlimited fines and even imprisonment.


David Robertson concludes, ìPaying staff wages is one of the highest costs associated with running a firm. Businesses should make contingency plans now on how they will afford the additional payroll costs ñ or suffer the consequences. One option could be to consider factoring as a means of financing any cash flow shortfalls. Factoring provides a flexible source of finance by allowing businesses to unlock the funds tied up in unpaid invoices ñ leading to an immediate injection of cash.î


Notes to Editors

*Based on a national survey (on behalf of Bibby Financial Services by Continental Research) amongst 300 SMEs with a turnover of between 50K and 1m. Respondents consisted of Owners, Partners, Directors and Managing Directors.


For further information on the National Minimum Wage regulations log on to