Minimum wage rising by 22% in three years to £12.71 an hour is "causing a proper headache" for small businesses

THE minimum wage rising by 22% in three years to £12.71 an hour is "causing a proper headache" for small businesses

The officially-named National Living Wage (NLW) is moving fast – from 1 April 2026, it rises to £12.71 an hour for those aged 21 and over. 

That's up from £10.42 in April 2023 – up £2.29 an hour, or 22% up, since.

Many people not on the minimum wage have not had anything like a 22% uplift in that time – so the gap between a team member and their supervisor has shrunk fast.

Kate Underwood, founder at Southampton-based Kate Underwood HR and Training, said it was leading to “wage compression” – making promotions harder to sell and annoying managers.

She added: "Pay your supervisors only a little more than the people they manage and don’t act surprised when they stop caring. NLW hits £12.71 from 1 April 2026. Great for low-paid workers. But for SMEs it’s causing a proper headache: supervisors are ending up on basically the same money as the team, just with extra stress and zero thanks. 

"If your supervisor is on £13/hour, the ‘reward’ for managing people, fixing problems, handling customers and taking the heat is just an extra few 10ps an hour. That’s not a promotion. That’s a punishment with a lanyard. This wage compression kills motivation, makes progression pointless, and pushes your best people out the door. 

“What to do: stop pretending a job title is a pay rise. Build a real responsibility gap (even £1–£2/hour helps). Add skill steps so people earn more by being better, not just sticking around. And strip the team leader role back so it’s actually doable, not the dumping ground for every messy task.”

David Belle, Founder and Trader at Fink Money, said it's a “nightmare for businesses”.

He continued: "There is a dual issue here. While minimum wage (MW) is rising, there is no removal of the Universal Credit (UC) taper. So while MW rises, people on UC will choose to work a bit less since they're earning more or the same, for the same or fewer hours of work. 

"This is a nightmare for businesses. While the focus is primarily on the incentives component (why go for a higher paid job with more responsibility when you can earn similar to someone who has none of the risk), we must factor in what this might do to the benefits bill and working hours of firms who employ people, especially on zero hours contracts. 

“And remember, most on zero hours contracts want to be on them due to the flexibility. Another unintended consequence is what this might cause to take home pay of graduates due to fiscal drag.”

Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said supervisors may only be earning about 29p extra an hour.

She added: "After the 22% increase, you've got a supervisor on £13 earning 29p more than the team they manage, for solving the problems, salvaging the deal, handling complaints, covering shifts and sickness, and taking all the heat. 

“The government has made leadership pointless leaving businesses to foot the bill to correct the labour market problem. The choices SMEs now face are brutal: find money they don't have to restore pay gaps, strip away supervisor roles and risk alienating customers, or watch their best people walk because ‘team leader’ has become a mug's game. Yet again, Labour fails to understand what running a business is like.”

Jennifer Marsden-Lambert, Director at Sheffield-based Second Chapter, said more and more burden is being placed on employers.

She continued: "Pay does need to keep pace with the cost of living, as falling incomes can both slow spending and drive lower-paid workers into poverty. However, the pace and scale of increases to the National Minimum Wage (NMW) and National Living Wage (NLW) place real pressure on small employers. 

"Freezing tax thresholds may generate income for the Treasury, but we see first-hand how the gap between inflation and take-home pay is increasingly being addressed through NMW/NLW rises, shifting more of the burden onto employers, including small businesses and cash-strapped charities. I accept the need to raise government revenue to fund public services and address deficits, but there are well-evidenced alternatives through tax reform, as highlighted by bodies such as the IFS and NIESR. 

"Being more explicit about how revenue is raised may be politically less appealing for Rachel Reeves, but it is arguably a more balanced economic approach that would better support household, local and national finances."