The UK’s business landscape is bracing for another wave of cost pressures as new labour laws and the recent increase in the National Minimum Wage are set to reshape employment practices and payroll budgets. In April 2024, the minimum wage for workers aged 23 and over rose by 9.7%, reaching £11.00 per hour—a move aimed at addressing the cost-of-living crisis but one that has sparked concern among businesses struggling to manage escalating expenses.

Small and medium-sized enterprises (SMEs), which make up 99.9% of the UK’s business population and employ nearly half of the country’s workforce, are particularly vulnerable. Mid-sized companies, often referred to as the “unsung heroes” of the economy, face additional challenges in adapting to these changes due to their operational scale and financial constraints.

Rising Costs, Limited Options

For many businesses, the increase in wages is compounded by the burden of proposed labour law reforms. These measures, which include stricter rules on zero-hour contracts, enhanced redundancy protections, and improved worker rights, are designed to create a fairer employment landscape. However, they also carry significant compliance and cost implications.

Unlike large corporations that can spread rising costs across global operations or leverage automation, SMEs and mid-tier firms often operate on thinner margins with limited resources for innovation. Many of these businesses will struggle to pass on increased costs to customers in price-sensitive markets, leaving them with little choice but to cut spending elsewhere—whether on hiring, training, or investment in growth.

The Broader Economic Picture

While increased wages may put more money in workers’ pockets, stimulating short-term consumer spending, they also risk fueling inflation. Businesses facing higher payroll expenses may need to raise prices to stay profitable, further exacerbating the cost-of-living crisis. Alternatively, companies might freeze hiring, reduce working hours, or delay investment decisions, potentially stifling economic growth in the long term.

For mid-sized companies that play a crucial role in driving innovation and regional employment, these pressures could lead to significant cutbacks or even a reassessment of their future viability. With global competition fierce, the added costs of doing business in the UK could push some companies to relocate operations or scale back their ambitions.

A Call for Practical Solutions

While the government’s efforts to improve worker protections are commendable, the unintended consequences for businesses—especially smaller and mid-sized ones—cannot be overlooked. Policymakers should consider balanced approaches, such as targeted relief or incentives, to ensure that businesses can adapt without being pushed to the brink.

For companies seeking practical ways to manage these challenges, GBMM offers an innovative solution. By invitation only, GBMM connects select businesses with providers who specialize in modern Employer of Record (EOR) models. These solutions streamline payroll management, ensure compliance with evolving regulations, and can significantly reduce overall employment costs. To explore how GBMM can support your business, contact us today.