Research from the Federation of Small Businesses has found that small firms are being hit by the challenge posed by the new National Living Wage (NLW) with the majority (59%) absorbing the costs by taking lower profits.

In its 2016 Q2 Small Business Index the FSB said that, following the introduction of the new wage in April 2016, small businesses have generally demonstrated their resilience in meeting this challenge, but some businesses have struggled. In fact, 47% of small businesses now cite wages as the main contributor to the rising cost of doing business. The NLW is currently projected to rise by £1.85 per hour over the next four years, reaching £9.05 by 2020.

The FSB is now calling for the Low Pay Commission to be given flexibility on how to meet the Government’s NLW target of 60% median earnings by 2020.

As anticipated in previous FSB research conducted before the NLW was introduced, the sectors most affected by the wage increase were those with tight margins and where low wages are most common. In particular, retail, wholesale and hospitality, and accommodation businesses say they have been negatively impacted by the NLW.

Mike Cherry, national chairman at the Federation of Small Businesses (FSB), 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. This will get harder for many firms in later years, with the targets set in a ‘pre-Brexit-decision’ economy.

“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. The rate of the National Living Wage should be set at a level the economy can afford, based upon economic and not political priorities.”