KPMG warns that the rise in the National Minimum Wage on 1 October from £4.20 to £4.50 an hour could increase operating costs by over 1% of turnover for many small and medium sized companies. And the news that there are plans to for it to be increased to £5.00 per hour by next year has also not been well-received.
From 1 October 2003, the following rates will apply:
- Main (adult) rate for workers aged 22 and over – £4.50 per hour
- Development rate for workers aged 18-21 inclusive – £3.80 per hour
NB: The development rate can also apply to workers aged 22 and above during their first 6 months in a new job with a new employer and who are receiving accredited training.
KPMG has warned that the rise in October could particularly affect those in the service sector. The professional services firm is urging small businesses to ensure they have accurately forecasted for the increased wage costs.
With staff costs commonly representing over 20% of turnover for many service sector businesses, privately-owned pubs, hotels and restaurants where a high proportion of staff are on the minimum wage could feel the changes most keenly, along with those that rely heavily on shop-floor or other ‘blue-collar’ workers. The 7% increase to £4.50, together with the attendant rise in National Insurance costs, could mean that anything between 1% and 1.5% of turnover will be eaten up by the increase.
Mel Egglenton, Head of Middle Markets at KPMG, said: “For companies operating on relatively small profit margins, an increase in costs of 1% of turnover is likely to be significant. Companies need to be factoring the increase in to their financial performance projections for the coming year. They also need to think about whether they will need to raise the hourly rate for other more senior staff who may also expect an increase in order to preserve pay differentials.”
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