With the new National Living Wage upon us starting this April 2016, Ryan Fox, Salon Management Consultant, looks at the implications for Salon Businesses.

Background

We have become familiar with the Minimum Wage and the small annual increase every October but this year the government has also introduced the new National Living Wage which now applies to anyone who is 25 or over and kicks off at £7.20 from 1st April 2016, instead of the current min wage for those 21 and over of £6.70.

Difference between the Living Wage and the National Living Wage

The compulsory National Living Wage should not to be confused with the Living Wage which is a voluntary hourly rate set independently and updated annually by the Living Wage Foundation. The current UK Living Wage is £8.25 an hour with London having a higher rate of £9.40 an hour. See the difference below:

Source: The Living Wage Foundation www.livingwage.org.uk

Increasing wage costs

The National Living Wage rise represents almost an 8% increase for those currently on the minimum wage. This is probably only the start as the Government is committed to increasing this every year and is likely to reach £9 an hour by 2020. It probably won't affect many of your staff now but it's likely to mean a higher wage bill overall especially in the coming years.

Implications

So apart from making sure you pay the new correct level, what else should you be considering regarding this change?

Well along with the introduction of Workplace Pension contributions (see my article "What do I need to do") the introduction of the National Living Wage will mean a higher wage % which eats into your profits. As we all know, wages are the biggest cost for salon owners because the industry is so labour intensive so it’s important to keep it under control.

What can you do to minimise the impact on profits?

The first thing is to get your prices right. This is often the place I start when working with a new client as this is where your income and profit comes from so if you haven’t got this right, nothing else will add up.

The next thing to do is to create a direct link between prices, wages and targets so that they all align. If you don’t get these right, again nothing will add up in terms of profit and you’ll be working hard for very little reward.

No time like the present

Reviewing these three essential business fundamentals of Prices, Wages & Targets is something I do regularly with salon owners but taking these recent changes into account, there has never been a more important time to review them to see if you have them aligned.

If you would like help aligning your Prices, Wages and Targets then please call me on 07702 208311 or email me at ryan@umbrellaconsulting.co.uk

Ryan Fox

March 2016