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Why paying too little could cost your business dear

Why paying too little could cost your business dear

February 10, 2014 by Rachel Miller

Why paying too little could cost your business dear/Rich man underpaying workerThere’s no doubt that the cost of living has risen in the past few years and for many, wages haven’t kept pace with inflation. It’s an issue that is high on the agenda across the political spectrum. But if you run a small business, how does it affect you?

With the Labour Party constantly highlighting the cost of living crisis, George Osborne has nailed his own colours to the mast, telling the BBC in January that the UK can now afford to raise the National Minimum Wage (NMW) above the rate of inflation. And he said that the rate for over-21s would have to increase to £7 an hour by 2015 for its real value to return to where it was before the downturn.

Wow — that’s a bit of an about-turn for a Conservative Party that opposed the whole concept of a National Minimum Wage in 1999.

Pressure to pay more

Now, with unemployment levels falling and skills shortages in some sectors, all this means one thing — businesses are under pressure to pay their employees more. But if you are still facing the tightest of margins, can you afford to pay the minimum wage, let alone more?

But the real question should be — can you afford not to?

Steep fines

From this month, the government is introducing new penalties for what it calls “rogue employers” that fail to comply with National Minimum Wage regulations. So what does this mean for small businesses?

  • The government is increasing the financial penalty percentage from 50% to 100% of the unpaid wages owed to workers. The maximum penalty will increase from £5,000 to £20,000.
  • The new legislation means that the maximum £20,000 penalty can apply to each underpaid worker.
  • The government also plans to name and shame those who fail to pay their workers what they are due.

It’s a tougher stance for the government and may well come ahead of a above-inflation rise in the NMW in the next few months.

Support for raising wages

Interestingly, business groups that tend to be lukewarm about the NMW are showing more support for increasing wages for the lowest paid workers. CBI director-general, John Cridland, said in his 2014 new year’s message that the numbers receiving the NMW was “a serious challenge that businesses and the government must address".

Certainly, the Living Wage campaign has put the value of a living wage at £7.65 per hour outside London and £8.80 per hour in the capital — considerably more than the current NMW rate of £6.31 per hour for those over 21.

If we all agree that the NMW is “good for society” where does this leave the struggling small business? Perhaps what the government needs to do now is to combine the stick of regulation with education about the positive benefits of paying staff decent wages.

You get what you pay for

The simple fact is that paying employees a decent rate is good for business — raising morale, encouraging career progression and boosting productivity. What’s more, staff that are properly rewarded provide a higher level of customer service and display more loyalty to the company. And there are tangible cost savings — with less absenteeism and lower recruitment costs.

Perhaps we need to stop seeing wages as just a necessary cost and start seeing them as a valuable investment in the future of business and the economy as a whole.

Rachel Miller is the editor of Marketing Donut.

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