The Federation of Small Businesses (FSB) has urged the Government to delay the National Living Wage (NLW) target for 2020, arguing employers are already paying a high price at its current level.
The lobby group said it was clear – even at this stage – that firms would not be able to cope, with a survey it carried out identifying the extent to which companies were having to absorb pain now from paying higher wages.
As things stand, staff aged 25 and over must be paid no less than £7.50 an hour.
The NLW is projected to rise to £8.75 by 2020 – by which time the UK is slated to have left the European Union following the Brexit vote.
The FSB said the stuttering economy had added to pressure on small firms, with inflation contributing to a four-year high in business operating costs.
Its research showed that 64% of those companies reporting an impact from higher NLW levels had “stretched” to meet this year’s increase by taking lower profits – damaging investment.
It said 39% had raised their prices, adding to the inflationary environment.
Taken together, the FSB said it had asked the Low Pay Commission to consider the delay to NLW levels from April 2020.
Its national chairman, Mike Cherry, said: “Small employers have demonstrated their resilience in meeting the challenge set by the National Living Wage, with many cutting their margins, or even paying themselves less, to pay their staff more.
“In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW.
“It’s vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation.
“Cost pressures on small businesses are building, and with most recent economic indicators underperforming, we are now facing the reality that the NLW target may need to be delayed beyond 2020.
“To prevent the growing costs of employment from stunting job creation, the Government should use its Autumn Budget to uprate the employment allowance and focus it on the smallest employers.”