Small businesses are facing challenges posed by the introduction of the national living wage (NLW) with 59% absorbing increased costs through reduced profitability.

The Federation of Small Businesses (FSB) small business index survey found that 47% of the firms surveyed cite higher wages as a main contributor to the rising costs they face.

The new NLW was introduced from 1 April 2016, setting a wage of £7.20 an hour for workers aged 25 and over.

Among the actions businesses have taken include raising prices (35%), reducing staff hours (24%), cutting investment (23%) and recruiting fewer workers (16%).

Further findings:

• 11% were paying staff under the new wage prior to the introduction, while 54% reported their staff being paid over £7.20 per hour at the time
• 19% reported an increase to their wage bill while 49% reported no impact.
  The NLW is projected to reach £9.05 per hour by 2020.

Mike Cherry, FSB national chairman, said:

“Small employers have stretched to meet the challenge set by the national living wage, with many paying their staff more by reducing operating margins.

“Considering the uncertain economic climate, the Low Pay Commission must be given the opportunity to adapt the target in future years so that it can be met without job losses or harming job creation.”