NATIONAL LIVING WAGE
From April, workers aged over 25 will be entitled to a National Living Wage of at least £7.20 per hour. This will rise to £9 per hour from 2020.
According to Zurich around one in five SME employees will receive a pay rise in April. This will increase to three out of ten workers in 2020. This means total wage bills for SMEs will rise by around 0.3% in April.
Recent surveys have found that nearly four-fifths of SMEs believe that the National Living Wage will have a negative impact on their ability to hire staff and grow their business, while only 5% think it will have a positive impact on their business.
Whatever approach SMEs adopt, from increasing their prices, to focusing on finding efficiency savings, to hiring a greater proportion of workers under 25, there will be risks and challenges to consider.
Skills shortage also looks set to be a significant challenge for SMEs in 2016.
One recent survey by Close Brothers (a leading merchant banking group) discovered that a third of SMEs do not believe their workforce has the skills required to meet their business needs, while another study by MHA (an accountancy and advisory firm) found that more than a quarter of SME manufacturing and engineering firms believe the lack of skilled potential recruits is a barrier that prevents them from growing.
The skills shortage is a particular challenge for medium-sized companies, with 44% of firms with between 50 and 249 workers citing it as a problem in the government’s Small Business Survey.
SMEs may choose to tackle the skills gap in many ways such as investing in staff training, setting up apprenticeship programmes or outsourcing parts of their businesses. Each approach brings its own challenges and SMEs need to be aware of how their business might be affected.
GENDER PAY GAP REPORTING
Another development SMEs need to be aware of is gender pay gap reporting.
In 2016 new measures will be enacted requiring employers with at least 250 employees to publish information about their gender pay gap.
According to PWC, carrying out a disclosable equal pay review and publishing an adverse gender pay gap could also have a number of significant and harmful implications for companies including:
The proposed penalty for non-compliance with the new measures is a fine of up to £5,000. However, according to PWC the associated negative publicity and employment relations risks would likely be far more damaging.
In order to protect themselves in advance of the act, employers need to carry out an equal pay audit and determine which jobs may be deemed equal. If there are any pay gaps discovered as part of the preparations, SMEs should identify the reasons why and put together a plan to address the gaps in pay.
Following these steps will not entirely remove the risk of equal pay claims, but putting right significant gaps will help to ensure that the majority of employees receive equal pay for equal work.
COMPULSORY PENSION SYSTEM
Under auto-enrolment all businesses, no matter how small, will eventually start having to make pension contributions for their employees.
Many employers have already been bought into the compulsory pension system with the most recent start-ups facing a final staging date of April 2017. However, this is not the end of the changes as the costs will continue to rise.
During the enrolment period (up to October 2017) the minimum employer contribution will be 1% of employees qualifying earnings. From October 2017 the minimum employer contribution will be 2%.
This will rise again in October 2018 when the minimum employer contribution will be 3%. If an SME has 20 employees earning £25,000 each, its wage bill will increase by £11,660 per year from October 2017.
If you do not already offer a staff pension, you can find one in the market place or use NEST (National Employment Saving Trust set up by the Government), which has a public interest function and is obliged to accept all employers. If you have existing pension arrangements for some or all staff, you can continue with that provided it is a ‘qualifying scheme’.
If not already included in the scheme, SMEs need to find out their staging date. Even those who are yet to be included need to plan and budget for how they will comply with their new duties.
BRITAIN’S FUTURE IN THE EU
In addition the uncertainty about Britain’s future in the European Union could also affect SMEs.
A referendum on whether or not Britain leaves the EU will take place on 23 June 2016. Nearly a third of SMEs say they are delaying their current investment plans as a result of uncertainty in the UK’s role in the EU.
By considering the issues outlined above, SMEs can prepare for the challenges ahead now, rather than fighting fires as the year progresses. The Willis Insurance and Risk Management Group can advise on all of the above issues from Insurances, Human Resources, Employment Services and Financial Services advice.
To discuss any of the above issues, click on the 'Arrange A Consultation' button at the top of the page and a member of the team will be in touch.