Minimum wage increase 'unwise' and 'unsustainable' for SMEs

THE PROPOSED INCREASE to the National Minimum Wage (NMW) will be ‘financially unsustainable’ for small and medium businesses, the Taoiseach has been warned.

The Irish Small and Medium Enterprise Association (ISME) today wrote to Leo Varadkar arguing that the 12.4% increase due next year will only add to the strain other government initiatives have put on businesses.

Its retail members estimate that the proposed increase – the largest jump since 2012 – will add between 1% and 2.5% to grocery bills, depending on the size of the store.

If agreed by the government in the budget, the recommendation by the Low Pay Commission will mean someone on the minimum wage who works a 39 hour week would earn an additional €54.60 per week from January 2024.

Chairperson Marc O’Dwyer told the Taoiseach that while “very few” ISME members pay staff at the minimum wage, the rate serves as an “important benchmark” and relativity for most incomes up to approximately €30,000 per annum. 

He said that it comes on top of a number of other costly payroll measures, such as the new St Brigid’s Day public holiday, a rising number of Statutory Sick Pay days, and Domestic Violence Leave.

While these changes are “laudable and welcome”, O’Dwyer said they are increasingly “unaffordable” for a lot of companies.

“The current earnings in small business average €720.33 per week, or €37,457 per annum, and we genuinely feel the hard work done by the Low Pay Commission lacks context around the fact that the majority of Irish workers are employed by SMEs, with earnings that are reflective of this, and not the exceptional premiums earned in FDI businesses and the public service,” he said.

“Many of our affiliated groups, in areas such as childcare, nursing homes and animal collection, operate in sectors where the overseeing department regulates the pricing in the sector, or caps commercial charges within it. Whilst trying to negotiate rate increases already in a difficult climate, with their parent department, these services will enjoy no scope to negotiate payment of the NMW.”

There have been suggestions that businesses may be supported by government in delivering the increased minimum wage in January.

O’Dwyer labelled the suggestion “unwise”.

“If proposed increases in the NMW are so large that businesses require state support, they clearly should not go ahead,” he said.

“In our view, the social wage and social welfare supports should be used to bridge identified gaps, not an increase in the NMW.

“Research the government has already seen suggests that where businesses cannot afford to pay NMW increases, they simply reduce employee hours worked, negating the justification for the increase in the first place.”

ISME represents over 10,000 small and medium enterprises in Ireland, either directly or through thirty-two affiliated associations and trade bodies.