The final announcement made by George Osbourne in his post-election July Budget was that by 2020 the legal minimum wage for employees of 25 years and older will be £9 per hour. The image of Iain Duncan-Smith’s excited reaction will stay with me for a long time.

Source: Telegraph.co.uk

For businesses that pay their employees the current National Minimum Wage, this is likely to be a significant extra financial burden. The first step to the £9 per hour level will come into place next April with the National Living Wage hourly rate starting at £7.20 – a rise of nearly 11% on the current amount.

For a store open from 6am to 10pm 7 days a week (112 hours), employing staff to have one adult rostered for every hour, the wage bill will be £806 per week, plus £62 accrued holiday pay, plus the other costs of employing people.

I am sure many employers are looking at what they can do so you are not alone in meeting this challenge. One case study I looked at a few years ago was how WHSmith were improving its efficiency and profitability.

There are 3 areas that you need to investigate and take action on.

1. Product range

WHSmith increased their gross profit margin by removing most low margin products and services from the range and relayed their stores to focus on high margin products. Their top line sales have fallen and their GP has grown. Independent retailers like Paul Cheema, Jai Singh and Sid Sidhu are all looking very closely at their range efficiency. They question every category and every line on its ability to deliver a rewarding profit for the space and time it takes to sell.

2. Employees

As James Timpson told retailers at the IAA Gala Dinner in 2012, by only choosing to employ people who you rate 9 or 10 out of 10, you will fill your store with amazing people. By training them and ensuring they fully understand their role, then empowering them to deliver excellence your business will become more and more efficient. Couple this with a move to flexible rostering and you will know that you are managing your employ cost effectively.

3. Costs

Do you know what it costs to operate your store every day? If you don’t you are probably spending too much on the variable cost of your business. The lesson from WHSmith over the past decade is that you need to have a continuous process of reducing the costs of your business by improving the efficiency of the way you operate.

It seems to me the choice for businesses is to either complain about what the Government is doing or to work out how to improve the way they run their operation.