Hundreds of thousands of low-paid workers across the UK are set for a pay rise as the Real Living Wage is set to increase by almost 7%. The announcement from the Living Wage Foundation provides a much-needed boost for employees grappling with the cost of living, but it also presents a significant new financial challenge for thousands of accredited businesses, especially in the hard-pressed retail and hospitality sectors.
A Welcome Boost vs. Rising Business Costs
The new rates are the only UK wage rates calculated based on what people actually need to live on. While this is a positive step for fair pay, it adds to the mountain of costs that businesses are currently facing. Employers must now navigate how to fund this increase on top of existing pressures.
- Increased Wage Bills: The pay rise will directly increase the monthly payroll for over 14,000 accredited Living Wage Employers, impacting sectors like hospitality, retail, and social care the most.
- Squeezed Profit Margins: For many small and medium-sized enterprises (SMEs), absorbing these additional costs will be a major challenge, putting further pressure on already thin profit margins.
- The Pricing Dilemma: Businesses face a difficult choice: absorb the costs and risk profitability, or pass them on to consumers through higher prices and risk losing customers in a competitive market.
- Investing in People: Proponents argue that paying the Real Living Wage leads to a more motivated, loyal, and productive workforce, which can offset the initial cost through lower staff turnover and better service.
Adapting Your Business to Higher Labour Costs
For businesses committed to fair pay, navigating this cost increase requires a strategic approach. The focus must shift towards enhancing productivity and operational efficiency to ensure the higher wage bill is sustainable. This is a moment to invest in your business’s long-term health, not just to manage a new expense.
Financing a Fair and Productive Future
Funding investments in efficiency, technology, or staff training is crucial for managing higher operational costs. A specialist finance broker can connect you to a diverse panel of lenders (over 95 lenders) who understand the challenges and can provide the capital needed to adapt and thrive.
Key finance options for managing increased costs include:
- Working Capital Loan: An unsecured loan can provide an essential cash flow buffer to help your business manage the immediate increase in its monthly wage bill while you adjust your strategy.
- Asset Finance: Fund the purchase of new technology or equipment—from a new EPOS system to more efficient kitchen appliances—to boost productivity and reduce long-term operating costs.
- Invoice Finance: Unlock cash tied up in your unpaid invoices to ensure you have a steady and reliable cash flow to meet your increased payroll commitments on time.
A finance broker can help you identify the right solution and structure it in a way that supports your business’s goals of being both a fair employer and a profitable enterprise. For official guidance on wages and employment law, visit the Acas website.
Conclusion
The rise in the Real Living Wage is a landmark moment for fair pay in the UK. For businesses, it underscores the importance of a resilient financial strategy. By investing in productivity and securing the right funding, companies can successfully navigate the increased costs and build a sustainable business that is a great place to work.
Need to adapt to rising business costs? Explore tailored finance solutions to support your business’s growth and efficiency today.