With the upcoming government employment reforms – including a rise in the National Minimum Wage (NMW), sick pay from day one, and increased National Insurance contributions (NICs) – SMEs face another wave of financial strain. How the new government employment reforms are impacting SMEs will soon become very evident, especially for labour-intensive industries like commercial cleaning. These changes will significantly impact SMEs and the commercial cleaning industry.
The commercial cleaning industry plays a crucial role in maintaining clean, hygienic, and safe environments in workplaces, schools, care homes, and other communal spaces. Cleaners remain essential in keeping spaces sanitised and safe, especially during health crises and seasonal epidemics. However, the government has once again overlooked this industry in its support schemes, leaving businesses to struggle with rising costs.
Industries such as retail, hospitality, and leisure benefit from the government’s Retail, Hospitality and Leisure (RHLR) Business Rates Relief Scheme, which offers discounts on business rates to help manage expenses. Despite its vital role across all industries, the cleaning sector has received no similar support. As labour costs rise without financial assistance, many cleaning businesses must either pass the costs onto clients or absorb them — both of which create serious challenges.
Public Perception vs. Business Reality
For the general public, news of a wage increase brings welcome relief. Workers understandably feel they deserve higher pay, especially as the cost of living continues to rise. From their perspective, a higher payslip represents a positive step forward. However, the impact of government reforms on cleaning SMEs includes many other factors than simply higher wages.
However, the public rarely sees the full financial impact on the businesses. While higher wages benefit employees, they also create several financial challenges for employers:
- Higher National Insurance contributions for employers. Many workers do not realise that employers must pay National Insurance on employee wages.
- Increased pension payments. As wages rise, more staff qualify for auto-enrolment, and existing contributions increase for employers.
- Sick pay from day one. This cost accumulates significantly when applied across the workforce. Many employees mistakenly believe the government funds Statutory Sick Pay, when in fact it is paid directly from the business.
Large multinational corporations with vast profit margins can manage these increases. They spread the cost across multiple locations, absorb expenses, or cut back in other areas to compensate. However, SMEs operating on tight margins may struggle to stay afloat under these rising costs.
The increase in Employment Allowance in the 2024 Autumn Budget does provide some relief for SMEs. However, removing the £100,000 threshold means that larger companies also benefit. This levels the playing field, but doesn’t help SMEs compete. Instead, it allows big companies (which already have stronger financial reserves) to absorb costs more easily. SMEs, get some tax relief but still struggle to compete. Large corporations can more easily handle wage increases, pension contributions, and sick pay reforms.
The government’s one-size-fits-all approach means that small businesses are being priced out of the market, while larger companies, who can afford these costs, dominate more and more of the industry. Fewer SMEs mean fewer choices for consumers, fewer local jobs, and ultimately, more power in the hands of big businesses.
The National Minimum Wage Rise: Expected and Necessary but Difficult to Manage
Most businesses agree that an increase in the NMW is necessary, especially in the face of inflation and rising living costs. From April 2025, the NMW will rise to £12.21 per hour for workers aged 21 and over, a substantial increase. However, for labour-intensive industries such as commercial cleaning, where wages make up a significant portion of costs, the impact of the government reforms on SMEs means significantly smaller profit margins and difficult financial decisions.
Unlike industries where price increases can be offset by charging more for products, the cleaning industry operates under fixed contracts that often cannot be renegotiated quickly. Many businesses will find themselves locked into agreements that do not account for the rising wage bill, forcing them to absorb the costs or risk losing clients
Impact of National Insurance Contributions Increase on Businesses
From April 2025, the increase in employer National Insurance (NI) contributions from 13.8% to 15% will have a notable impact on businesses. In addition to the increase in contribution rates, the secondary threshold, which determines the level at which employers begin paying NICs, will decrease significantly. It will drop from £9,100 to £5,000 per year, meaning businesses will be required to pay National Insurance contributions on an additional £4,100 of each employee’s salary. This shift will result in a higher tax burden for employers, Overall, while the increase in NI contributions aims to raise government revenue, it places additional financial pressure on small to medium businesses, particularly those with lower-income workers or a large part-time workforce such as the cleaning industry.
Sick Pay from Day One: A Positive Step but a Costly One for SMEs
Also on the horizon is the introduction of Statutory Sick Pay (SSP) from the first day of sickness for all workers, including those on zero-hour contracts. While this provides a very small financial benefit for workers, it adds yet another financial strain on SMEs.
A major issue is that the vast majority of sick days, even when well-managed, tend to be short-term absences of 1-2 days. When added up across an entire workforce, this results in a substantial cost to businesses. Cleaning companies could see a significant rise in sick pay expenses, as well as increased costs in covering absent staff.
For many SMEs, this additional cost is a serious financial burden. Once again larger corporations have great potential to absorb these expenses, while smaller businesses often operate on smaller profit margins.
The Impact of Rising Costs on Clients and the Industry as a Whole
Many cleaning businesses will be forced to pass these higher costs onto clients, but this presents a major risk. Clients, particularly in office environments, are also looking for ways to cut their own costs. If cleaning fees rise, businesses may reduce their reliance on cleaning services by:
- Reducing contracted cleaning hours, focusing only on essential areas.
- Asking staff to clean their own desks and replenish their own washroom supplies instead of relying on cleaners.
- Encouraging employees to work from home, reducing the need for office cleaning services.
These cost-cutting measures mean less work for cleaners, fewer hours available, and ultimately fewer jobs. Ironically, the wage increases meant to help workers could result in reduced employment opportunities as businesses struggle to afford the rising costs.
How Can SMEs in the Cleaning Industry Adapt?
With no government support available and rising costs threatening the viability of many businesses, cleaning SMEs must adapt quickly to survive. Some potential strategies include:
- Streamlining Operations and Increasing Efficiency
Businesses must review their operations to identify inefficiencies and optimise staff scheduling to reduce unnecessary labour costs.
- Strengthening Client Relationships and Offering Value-Added Services
Rather than simply raising prices, businesses should work with clients to demonstrate the value of their services. Offering additional hygiene services, deep cleaning packages, or eco-friendly cleaning options could help justify price increases and differentiate businesses from competitors.
- Retaining Staff and Reducing Turnover
High employee turnover increases recruitment and training costs. By investing in employee well-being, offering training opportunities, and ensuring good working conditions, businesses can improve staff retention, ultimately saving money in the long run.
- Exploring Alternative Revenue Streams
Some cleaning businesses are diversifying their offerings to include services such as property maintenance, security, or supply of hygiene products. Expanding into complementary services can help mitigate financial losses from reduced cleaning contracts.
Conclusion
While businesses will need to adapt through efficiency improvements, strategic planning, and diversification, the reality is that without support, many may struggle to survive. The impact of the government reforms on SMEs could see many small businesses pushed out of the market, leaving the big corporations to take over. It’s time for the government to recognise the essential role of SMEs and provide them with the same support afforded to larger corporations.
