On 1 April 2024 significant increases to the National Minimum Wage (NMW) and National Living Wage (NLW) come into effect. As can be seen from the table below, the increases range from 21.2% (for 16- and 17-year-olds) to 9.8% (23-year-olds and above).
| National Living Wage/National Minimum Wage rate changes | ||||
| Age | From 1 April 2023 | From 1 April 2024 | From 1 April 2025 | % Increase 2024 to 2025 |
| 16 | £5.28 | £6.40 | £7.55 | 18.0% |
| 17 | £5.28 | £6.40 | £7.55 | 18.0% |
| 18 | £7.49 | £8.60 | £10.00 | 16.3% |
| 19 | £7.49 | £8.60 | £10.00 | 16.3% |
| 20 | £7.49 | £8.60 | £10.00 | 16.3% |
| 21 | £10.18 | £11.44 | £12.21 | 6.7% |
| 22 | £10.18 | £11.44 | £12.21 | 6.7% |
| 23+ | £10.42 | £11.44 | £12.21 | 6.7% |
This is not a political article; there are many interesting articles on the web debating the pros and cons of NMW/NLW increases in terms of their impact on employment, economic growth, inflation, and so on. This is an article looking at the practicalities and challenges of managing NMW/NLW increases as a business. And, how Paperclip may be able to help if your business is reviewing the options it has.
At Paperclip, as in many of our clients, trainees are initially paid the NMW/NLW and progress on to higher rates of pay based on skills acquired and experience. Like many business owners and directors reading this article, Paperclip has established differentials to reward team members for progression. Such differentials help with team morale and retention. Not only does the increase in NMW/NLW have its own direct impact on employment costs, but the desire to maintain differentials passes such increases on up the line. It is no surprise that one research project found that, ‘…there were significant ‘spillovers’ to higher paid workers, with middle income households benefiting the most from a minimum wage rise.’*In summary, there is a significant wage cost impact in raising NMW/NLW which extends well beyond those on the minimum wage.
As a business owner or director there are only a limited number of ways you can mitigate these wage cost increases. Below, we have outlined the possible available options into three categories: financial, employment and strategic.
Financial
If your client base is willing and able to pay, you could increase prices (hence the suggestion that NMW/NLW rises could fuel price inflation). You could absorb the wage cost rise and accept a reduction in your margins. There may be efficiency gains you can identify and implement to reduce your cost-to-serve, thereby protecting some or all of your margin (it is argued in some commentaries that there is a morale and productivity boost that feeds through from the NMW/NLW rises). You may, of course, combine elements of all the above financial options.
Employment
At Paperclip, our employment strategy is to recruit and train such that we always have a degree of spare capacity. This approach means we can say ‘yes’ to new clients and the subsequent increase in activity levels. This ‘spare capacity’ approach also makes it easier to accommodate the ongoing training and upskilling of the Paperclip team.
The increases in NMW/NLW definitely impact on our thinking when considering whether to recruit, or not, the marginal employee to increase our ‘spare capacity’ margin. It certainly has made us think twice, sadly, about whether to replace our previous marketing and social media apprentice. You have to keep a critical eye on overheads.
We are sure that businesses across the UK are struggling with similar employment decisions.
Strategic
In this context, what we mean by a strategic approach to mitigating the increased wage cost burden brought about by NMW/NLW rises is to question the ‘way things have always been done around here.’ In other words, to look at your business model and ask whether there are ways costs could be reduced or efficiencies generated by changing the way you operate.
It is in the strategic context that Paperclip may be able to help you and your business absorb the NMW/NLW cost increases.
One strategic option to consider could be whether to outsource some or all of your non-core activities. All of Paperclip’s non-core activities are outsourced, including accounts, website, IT, phone systems, cleaning, and marketing. This enables us to source these services from experts, only pay for the services we use, and have greater visibility and control over these costs.
Paperclip and outsourcing
Paperclip’s core activities are call answering, reception desk services, live chat, and admin support. The majority of these core Paperclip services are non-core to most businesses regardless of the sector in which they operate.
The benefits of outsourcing your call answering and/or admin support to Paperclip can be substantial. In the case of reception desk services or admin support, you are effectively changing a fixed cost (employee) into a variable cost (i.e. you only pay for the minutes you use). Outsourcing non-core activities to Paperclip means you can focus limited managerial resources on improving your core service delivery without distractions. The flexibility, agility, and headroom of the Paperclip business model (see reference to spare capacity above) provides you with the ability to scale your business at short notice. You also benefit from having your calls answered and your admin sorted by a team with experience, and speed, in handling such tasks. And, of course, a benefit of outsourcing is that you reduce the need to recruit!
There is already a more detailed article on maximising the benefits of outsourcing and avoiding the potential pitfalls available on the Paperclip website:https://www.paperclip.co.uk/business-outsourcing-benefits-pitfalls/
Summary
Whichever way you choose to respond to the NLW/NMW increase, there will be challenging decisions to make regarding pricing, costs, recruitment and more. Adding outsourcing as an option to consider will increase the variety of choices open to you and could enable you to significantly streamline your operations.
For an open discussion on the challenges raised for your business by increases in the National Minimum Wage and how Paperclip may be able to help you, call me on 01246 418 181.
Louise Bellwood – Director
01246 418 181
louise@paperclip.co.uk
Hi, I’m Louise Bellwood, Director at Paperclip. I am responsible for delivering Paperclip’s customer service and growth strategies for 2024 and beyond, I am a crusader for the benefits call answering can deliver for organisations of all kinds; customer service, sales generation, customer retention and more. If you have a question about call answering – pricing, set-up, benefits – I would love to hear from you at louise@paperclip.co.uk or 01246 418 181.