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The Federation of Small Businesses (FSB) is warning the country's small firms to make sure they act now on National Living Wage to avoid heavy fines.

The new National Living Wage (NLW) comes into effect tomorrow (1 April), meaning every employee over the age of 25 must be paid at least £7.20 per hour. That figure will rise to an estimated £9 by 2020. It is not to be confused with the National Minimum Wage (NMW) or voluntary Living Wage.

While many small firms already pay their staff above NLW and will not be affected, others will find it a significant challenge and face difficult choices in order to pay for the higher wage bill.

Research published by think tank, Resolution Foundation, found that the benefits of the National Living Wage will be 'varied across the UK'.

In October last year, the FSB surveyed its members to find out how small businesses expected to adapt to the new NLW. The research found that well over a third (38%) of small employers expect the higher way to negatively impact their business. Just six per cent of businesses thought the policy would have a positive impact on their business.

When asked to consider the projected rise in the NLW to at least £9 an hour by 2020, over half (54%) said it will have a negative impact.

Businesses in the wholesale and retail sector, and those working in accommodation and food services, were most likely to say the NLW will have a negative impact. In addition, businesses in Yorkshire, the West Midlands, Wales and the South West were among the most likely to cite a negative impact. Businesses which said they would be negatively impacted were asked how they will adapt to the new NLW when it comes in. Just over half (52%) said they would put off hiring new staff while 50% said they would raise their prices.

Despite the challenges posed by the new wage rate, the FSB is encouraging its members and the small business community as a whole to make sure they are ready for the NLW ahead of Friday. FSB members with any queries about the NLW can contact the organisations free employment advice line on 03450 727 727 with their membership number to hand.

Mike Cherry, FSB national chairman, said: “With the new National Living Wage coming into force this Friday, all employers have a legal duty to make sure they pay their staff the correct wage. Any small business owner who is unsure what they need to do should call our free member advice line without delay.

“Small businesses are playing their part by creating jobs and boosting pay packets wherever they can. Our research suggests that over half of small firms already pay their staff more than the voluntary Living Wage, but those that don’t are often operating in highly competitive sectors with very tight margins.

“While it is easy to say everyone deserves a pay rise, the only way to deliver and sustain higher wages in the long run is to improve productivity, boost skills and drive business growth. Without the right type of productivity growth, there is a real risk that in many sectors higher enforced statutory wages will lead to fewer jobs being created, fewer hours for existing staff and, unfortunately in some cases, job losses.

“It’s important that the independent Low Pay Commission continues to play a central role in setting minimum wages. This includes having the ability to recommend that the Government deviates from its plan to raise the National Living Wage to over £9 an hour by 2020, if it becomes apparent that the economy cannot afford it.”