Cleaning industry hit by financial double-whammy

Earlier this year the government delivered a huge financial blow to UK Industry. The changes to the Employers National Insurance (ErNI) and the increase in minimum wage has delivered a significant hit to businesses’ bottom line. According to data supplied by CleanLink, ErNI has doubled on average from 4.5% of a company’s payroll costs to 9% based on how a business is structured. For example, companies with a small workforce working long hours will have high ErNI payroll costs of 8 - 9%, whilst ErNI contribution rates of 1.2% have been possible with a large part-time workforce mostly earning less than £9k pa.

Within an industry that already operates on very low margins, often less than 10%,such a direct impact on profitability is not sustainable for many businesses. Being able to use the structure of a business to help manage costs has historically been a huge benefit, with this year’s changes this advantage is no longer possible. CleanLink are keenly aware that many of their clients are going through a very difficult time and earlier this month they sat down with Coastline Contract Services to understand how the changes are impacting both the industry and their business.

Coastline Contract Servies is one of the UK’s leading independent commercial cleaning contractors with about 230 employees, based in the Southwest. The business has seen consistent growth supported by continuous investment in management, supervision, Health and Safety along with new technologies. Over the years challenges such as COVID have impacted performance and sometimesshrunk the business in the short term. However, Coastline has weathered the storm extremely well, partly due to the vigilance they apply to their business management processes. With the announcement of the new ErNI and minimum wage they explored how they could manage the change, this time with increased prices to clients; unsurprisingly this was not well received.

Sylvie Manuell at Coastline Contract Services said: “In our industry clients don’t want to pay more for cleaning. It’s now difficult to supply the same service without raising our costs as we are already seeing the impact of the changes. However, discussing the increase has been a difficult topic with clients. The changes to the ErNI calculation are having a huge impact on both small to medium size companies, and I believe it’s because government aren’t thinking about us when they make these changes. The bigger companies already get more help from Government due to the threat of high redundancy levels. The reality is that many small businesses going bust is as damaging as a large business but it’s not as newsworthy.”

Many in the UK cleaning industry believe, like many other industries who employ part time staff, they are not being taken into consideration by the Government when tax and rules are reviewed. According to CleanLink’s data, before the recent changes to NI came into effect, the average percentage of employees attracting ErNI was 40%, this has risen to 80%. The number of staff now paying Employee NI (EeNI) has increased by 5%. These companies used to offer an income supplement to low earning families; now these families are caught in a benefits trap where they are penalised if they work too many hours. This results in a perverse incentive structure where working more hours can lead to a loss in income. In effect people are encouraged to limit their income to ensure they maintain access to crucial benefits like housing or childcare support. This in turn leads to a recruitment gap which is already a challenge in the industry with reports that 30% of roles are currently unfilled.

While this year is proving to be tough, Coastline Cleaning Services are anticipating more challenges next year with government changes to Statutory Sick Pay (SSP) which is already a cost that directly hits the bottom line.

Sylvie Manuell continued: “In our industry when someone is sick, we must service the contract by sending another employee. In term of charges, it means we pay SSP and then pay for thecleaning cover for the sick employee, in essence we pay twice the cleaning hours to allow us to cover contracts and pay sick pay. It is easy to see how margins can quickly disappear if absences are not managed.”

With the current system, an employee must earn an average of £125 per week and be off sick for three days before receiving SSP. The government proposal for the new SSP rules, is any employee could receive some level of SSP from day one. This would be another direct hit to the cleaning industry’s bottom line. SSP is already a big cost and as a business funded scheme, again it’s small and medium sizebusinesses that carry the financial burden. 

Only time will tell as to how the forthcoming revisions to SSP will impact UK industry, and in particular, the UK cleaning industry.

To help manage their business effectively Coastline have implemented the CleanLink software and have really appreciated the impact it has made to their management processes, particularly during challenging times. However, it’s the support from the CleanLink Customer Services team that has really made the difference. The depth of industry knowledge the team have is very strong and they really understand HMRC regulations such as maternity etc.

Sylvie Manuell concluded:  "It’s very important when you have issues there’s a team that knows how to find a solution. Regulations are often so complex and hard to understand that I have to call the CleanLink team and bounce back what the right calculations should be. It’s great to be able to check with them to ensure I’ve understood them correctly. It’s more than just software CleanLink are selling and being well trained on the processes is vital support, as calculations need to be right so that the business is operating legally – it’s invaluable peace of mind. CleanLink definitely go over and above with their support."

As the business environment becomes ever more difficult there is a need to ensure companies operate efficiently by making sure processes are managed effectively. 

For more information, visit​ https://www.coastlinecleaning.co.uk/