Minimum Wage: Unravelling the Impact on businesses & recruitment

We have seen a substantial increase in the UK minimum wage along with a reduction in the applicable age for the highest level in the last 3 years. At the start of 2020, just as the world was entering the COVID outbreak, UK minimum wage was sitting at £8.21 per hour for workers aged 25 and over. Now in 2023, minimum wage is £10.42 for workers aged 23 and over.

This is welcome and overdue news for workers, but  in this article we take a looking into the impact the increase has had on businesses and recruitment.

What impact has the increase in the National Minimum Wage had?

Employee Retention:

Raising the minimum wage provides financial relief for employees, potentially reducing their inclination to switch jobs for better pay. Higher wages can enhance job satisfaction, incentivise loyalty, and improve employee retention rates, but with the cost of living challenges across the world currently minimum wage roles still carry a stigma in the market that the job, is as the candidate sees it ‘Minimum Wage’  so this means trying to make your role stand out in other ways such as flexible working arrangements, better benefit packages or other unique selling points for a role.

Competitive Advantage:

Higher minimum wages can create a competitive advantage for businesses that prioritise fair compensation. Companies that pay above the minimum wage are often viewed more favourably by job seekers, attracting a larger pool of qualified candidates. By offering better remuneration packages, employers can potentially secure top talent, leading to a stronger and more capable workforce.

Adjustments in Recruitment Strategies:

While the minimum wage increases benefit workers, businesses may need to adjust their recruitment strategies to accommodate the higher labour costs. To ensure profitability, employers might be more selective in their hiring processes, seeking candidates with the necessary skills and experience to maximise productivity. Consequently, potential job seekers with limited qualifications or experience may face increased competition for entry-level positions.

Automation and Technological Advancements:

As labour costs rise, employers might explore alternative methods to mitigate the impact on their bottom line. Automation and technological advancements such as AI can offer efficient solutions to reduce dependence on human labour especially in areas such as Contact Centre and First Line Customer Support positions. Consequently, recruitment in certain sectors could be affected, with a potential decrease in demand for low-skilled jobs. To adapt, job seekers may need to acquire new skills or seek employment in industries less susceptible to automation.

Small Business Challenges:

While larger corporations may have the resources to absorb the impact of minimum wage increases, small businesses may face more significant challenges. Higher labour costs can strain their budgets and limit their ability to expand or hire new employees. In some cases, small businesses might need to reduce staff or adjust working hours to maintain profitability. This scenario can result in reduced job opportunities for individuals seeking employment in smaller enterprises.

Summary

With Inflation still sitting at high levels, interest rates rising and the cost of living putting pressure on workers at minimum wage or higher we can expect another increase in minimum wage in early 2024, getting your recruitment needs covered in advance of this, building a thriving environment that your employees value above a potential small increase elsewhere and an overall package that makes them feel that they are in the right position with the right company is a major challenge but ultimately worth the effort, every employee retained is more than just a head that needs replacing.

We all need to think differently about recruiting for entry level roles and how keeping our employees settled saves not only the cost of recruitment but also the impact on your business of training new starters, getting them fully up to speed and any potential management time of the starters who don’t make the grade.

Reach out to us to discuss how Vermelo can help support you not only with your recruitment challenges but also your retainment challenges.