Managers across the UK’s small and medium-sized enterprises (SMEs) are finding themselves earning only marginally more than junior staff. Some experts claim the government is “making leadership pointless” by shrinking wage gaps that once justified added responsibility.
Wage Compression Makes Leadership Roles Harder to Fill
The upcoming rise in the minimum wage, confirmed by Chancellor Rachel Reeves, is widening tensions within the wage structure of small businesses. The rate for workers aged 21 and over will move from £10.42 in April 2023 to £12.71 by April 2026. According to Kate Underwood, founder of Kate Underwood HR and Training, this is contributing to what she describes as “wage compression,” where the gap between team members and their supervisors has narrowed to just a few pence per hour.
“Great for low-paid workers. But for SMEs it’s causing a proper headache,” Underwood said. “Supervisors are ending up on basically the same money as the team, just with extra stress and zero thanks.” She warned that the change is making promotions less attractive and harming morale. “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.”
Supervisors expected to handle operational pressures are increasingly disillusioned with their roles, according to Underwood. The narrow financial incentive is leading to difficulties in retaining mid-level staff. “That’s not a promotion,” she added. “That’s a punishment with a lanyard.”
Shrinking Pay Gaps Put Business Operations Under Strain
For many SMEs, maintaining traditional pay hierarchies is becoming untenable. The compression of pay scales has created a situation where added responsibility no longer comes with meaningful compensation. According to Colette Mason, author and AI consultant at Clever Clogs AI, some supervisors now earn as little as 29 pence more per hour than those they manage.
“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” Mason said. She argues the government’s policy has left “businesses to foot the bill to correct the labour market problem.”
As wage compression spreads, small business owners are reportedly faced with three difficult options: increase pay gaps by finding money they don’t have, restructure teams to eliminate supervisory roles, or risk high staff turnover as motivated workers walk away. “Team leader has become a mug’s game,” Mason added. “Yet again, Labour fails to understand what running a business is like.”
For SMEs, the implications stretch beyond internal operations. Customers may also feel the impact if experienced staff leave or service standards drop. Some business owners are reportedly considering removing the team leader role altogether, turning instead to flatter structures with fewer hierarchies.
Though the policy aims to improve living standards for lower-paid workers, its effects on internal business dynamics are becoming increasingly visible. Without additional support or flexibility, many small businesses say they are left in a precarious position, trying to balance fairness for staff with long-term financial sustainability.
