New minimum wage: how should your business prepare?

The new National Minimum Wage will be introduced in April 2024. How can employers prepare for the increased cost?

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Helena Young
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On April 1 2024, workers on the National Minimum Wage (for those of at least school leaving age) and the National Living Wage (for those aged 21 and over) will have their pay boosted. The change will be the largest ever increase in the minimum wage in cash terms and the first time it has increased by more than £1 – bringing big implications for businesses paying their staff.

With the UK’s economic troubles showing no sign of abating, the government has faced pressure to help low-paid workers pay for household goods and staples that grow more expensive by the day.

At the same time, small businesses are already shelling out for the added costs of fuel, energy and supplies. For employers, the rise couldn’t have come at a more challenging juncture. Ahead of the changes, we look at how the new minimum wage will affect small business costs, plus savvy ways to minimise the impact.

Get expert help with paying your staff – see our guide to the Best Small Business Payroll Services

What is the new minimum wage?

When it is introduced in April, over 21s will become eligible for the National Living Wage, which will be raised to £11.44 an hour. This is a 9.8% increase on the previous rate. Minimum pay rates for younger workers are also set to increase. Here’s a quick breakdown of how the 2022/23 rates compare:

23 and over21 to 2218 to 2016 to 18Apprentice
April 2023 (current rate)£10.42£10.18£7.49£5.28£5.28
April 2024 (new rate)£11.44£11.44£8.60£6.40£6.40
% increase9.7%12.37%14.8%21.2%21.2%

The changes have been made following recommendations made by the Low Pay Commission, an independent body that advises the government about the NLW and NMW. The new rate represents a significant step-up from previous costs, particularly for younger workers.

Apprentices and those aged between 16-17 have seen the biggest increase, with average pay rising by a massive 21.2% between 2024 and 2023 – twice the rate of inflation during the same period.

How will this affect small businesses?

Business leaders are legally required to pay at least the minimum wage to their staff. In a dispute at a tribunal or civil court, the burden is on the employer to prove that the minimum has been paid.

For many UK startups and small businesses, the new NLW represents yet another restriction on growth in a year that’s been defined by rapid inflation, rising interest rates, and an energy crisis that’s sent both electricity bills and petrol costs skyrocketing.

The result is a Catch-22 for employers who want to pay staff a wage they can afford to live on, without jeopardising the health of their place of employment. According to recruitment firm Robert Half, 32% of employers are experiencing an increase in wage expectation and are having to inflate salaries to maintain a competitive edge for talent.

Particularly hard hit have been those companies based in customer-facing industries, such as tourism, hospitality and leisure. Office for National Statistics data indicates significant shortages remain across the UK’s hotels, restaurants and pubs. 132,000 vacancies are currently open, a figure that is 48% above pre-pandemic levels.

Managing Director of business advisors and insolvency experts Forbes Burton, Rick Smith, said: “Wage rises have their place, but the timing of these increases couldn’t be worse, small businesses need to get back to where they once were with solid foundations.

“Businesses are likely to be faced with the task of regaining stability as well as instilling supplier and customer confidence. This rebuilding takes time and won’t be a quick fix.”

Let’s have a look at how the minimum wage will impact SMEs:

Added strain on finance

On average, the rise means a full-time worker contracted to work 36 hours per week will now be paid £22,000 per year (pre-tax). However, an increase to the National Minimum Wage means more expense to the employer than just wages. It’s also an increase to associated costs, including National Insurance Contributions (NIC) and holiday pay.

In September, the government announced it would that the main rate of National Insurance would be cut from 12% to 10% from 6 January, affecting 27 million people. Under the change, the rate of tax paid by employers and employees will be reduced by one percentage point.

However, these savings have been switfly cancelled out by confirmation that the current NIC thresholds for both employers and employees will be frozen through to April 2028, meaning that more workers will be paying National Insurance as their wages rise.

Difficulties hiring

A further challenge is that the competitive hiring market means many businesses will struggle to compete for applicants if they only offer minimum wage. Many businesses often choose to pay the so-called ‘Real Living Wage’ to staff members. This is considerably higher than the National Minimum Wage at £12 per hour in the UK (£13.15 in London) and can therefore get ahead of the competition when it comes to recruitment.

But, for a small business such as an independent grocery store, this introduces the challenge of competing with the wages of supermarket giants.

Anoop Rehal is partner at Haines Watts, a chartered accountants. Rehal told us that businesses which can only offer the National Minimum Wage will find it harder to attract and retain talent once the new rate is introduced.

“The construction sector is a good example of this – the competition for talent is fierce at all levels, wages are rocketing and valuable people are constantly moving for better pay.

“Competition for staff in most sectors is relentless. This makes it an employee’s market and it is difficult to see start-ups that can only offer the National Minimum Wage being able to secure workers or retain the workers they have.”

Read our expert guide to find out more about how to recruit new talent in a hiring crisis.

Increased staff satisfaction

On a more positive note, when employees are paid a living wage, they are less likely to worry about making ends meet and more likely to feel secure in their financial situation. This can lead to a greater sense of peace of mind and overall wellbeing, which can in turn positively impact their work performance and attitude.

Corporate social responsibility (CSR) is becoming increasingly important to employees and potential investors. Boosting pay will not only help your CSR credibility, but will also ensure high levels of staff satisfaction, which helps with productivity and overall financial result.

Employment expert Simon Gilmour, from Harper James Solicitors, highlighted the benefit that a new minimum wage could bring to employee performance and productivity:

“Workers who are happier with their levels of pay are more likely to be more productive and satisfied in their roles, which in turn increases the chances of them staying with your business.

“That’s why business owners should also regularly review all employees’ wages and pay rates, and reward staff when they can for good service.”

What can SMEs do to absorb the added cost?

There’s no way to get around paying your staff the minimum wage. It is, after all, a legal requirement.

You could be forced to pay a steep maximum penalty of 100% of an employee’s annual wages if you are found to be underpaying staff.

Failure to comply could also result in prosecution and an additional fine. But there are ways to get ahead of the effects of a rise in minimum wage, or indeed any government tax increase.

Simon Gilmour, employment partner at Harper James Solicitors, said there are several things business owners could do to prepare for the minimum wage rise.  

“The key for any change of this nature is to be prepared. All businesses should start by reviewing how the alteration of the wage rates could impact their outgoings.

“Nobody wants to cut staff levels and for those businesses which aren’t able to absorb the costs associated with such changes, there are several steps they might look to take before having to go down that road.”

Smaller businesses, with lower profit margins and tighter budgets, are often more susceptible to the impacts of a higher national wage. They may have less flexibility to absorb the increased labour costs and may be forced to make more drastic changes to their operations to maintain profitability.

Below, we outline four simple tactics you can use to start bringing more money in and/or reducing the amount of money flowing out of your business.

Cut expenses

Take a look at what your current operating costs are and ask yourself: how could these be scaled back?

Where appropriate, even small changes can help to reserve your company’s cash flow. Common ways to limit expenses include:

Reduce hours

Another way to limit labour costs without causing redundancies is to reduce staff hours to short-time working. For example, you might ask an employee to work a three-day week, instead of a five-day week.

Reducing a worker’s hours is an entirely legal process. But the one consideration you’ll need to make is to ensure that you keep your employees well informed during the process. Remember: you can’t make any changes to an employee’s contract without them first agreeing.

If you reduce staff hours without a staff member’s compliance, they’ll still be entitled to a full-time wage. It could also result in legal consequences for you, such as a claim for a breach of contract.

If you’re unable to reach an agreement with your employee, you may also consider a forced reduction in working hours. This involves dismissing and re-engaging the same member of staff under the new contract. Such a drastic approach should definitely be considered a last resort, however, as it is not a great way to encourage staff loyalty.

Change your service offering

Another common solution for business owners to reduce labour costs is to consider increasing your prices. No business really wants to increase prices – and you should be very careful when making this decision. It can have a harmful effect on your customer base, and also make your business stand out less from the competition.

Be sure to communicate with your customers so they know what to expect. Also examine what your competitors charge, so you can be sure your customers won’t flee for more cost-effective alternatives.

If you want to avoid this more drastic scenario entirely, however, then there is another, related way to make your service offering more cost-efficient, as Simon Gilmour, employment partner at Harper James Solicitors, advises.

“Think about whether you might streamline your business offerings. When new cost challenges emerge, cutting back offerings with small profit margins can be an efficient way of saving money.”

If you’re a beauty salon, for example, look at which beauty treatment is making you the most money, and which the least. That will help you to determine the areas where you can save money by reducing spend on materials and labour.

Financial assessment

One of the most important ways to prepare for any tax increase is to make sure you have a strong understanding of your current financial position. Speak to a third-party financial expert to get a run down of the costs and make sure you can afford the new payrolls.

If you have growth plans in place, make sure you’ll have the capital available to enact them once you’ve incurred any added costs from the change. Now is also a good time to look at the type and levels of your debt.

If you’re short on money, investing in accounting software is a sensible, low-budget way to track your company cash flow, revenue and expenses. This will make it easier to keep an eye on your financial situation once you begin paying a higher wage to employees.

Read our comprehensive guide to the best free accounting software solutions for small businesses, and get started today for zero charge.

What help is available?

If you’re struggling financially as a consequence of the minimum wage rise, government support is now available to ease some of the burden for customer-facing firms, such as those in the travel, leisure and hospitality industries.

Hospitality and leisure firms in England, as well as their supply chains, are able to apply for the Retail, Hospitality, and Leisure (RHL) Rates Relief Scheme, a discount scheme for business rates.

In a significant move to bolster small businesses across the UK, the government has also allocated £1 billion through its Start Up Loans scheme. Successful applicants will receive free support and guidance to help write their business plans, and up to 12 months of free mentoring.

Find out more about the top small business grants available for 2024.


Minimum wage increases are a fact of life for the business world. But while it can be tempting to see the new rate as another burdensome tax rise, small business owners shouldn’t underestimate its benefits.

Your staff are one of your most important resources and raising their wages should be seen as an investment in your company.

Simple operational and behavioural changes can help to accommodate the change. If you plan accordingly, and use finance software or third-party consultants, minimum wage increases don’t have to be an obstacle to growth. Instead, they can be a benefit for both your business and your employees. is reader-supported. If you make a purchase through the links on our site, we may earn a commission from the retailers of the products we have reviewed. This helps to provide free reviews for our readers. It has no additional cost to you, and never affects the editorial independence of our reviews.

Written by:
Helena Young
Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.

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