What Capital Budget would a business have saving a single employee earning the UK Minimum Wage to spend on Labelling Machinery Automation?
Introduction
Investing in automation, like a labelling machine, can bring substantial financial savings and efficiency improvements for businesses. This article focuses on the potential budget for a labelling machine that replaces tasks performed by just one full-time employee, on a like-for-like productivity basis, paid the UK minimum wage. We will explore projected savings over a 10-year period and discuss additional financial benefits beyond the direct ones, including reduced repetitive strain injuries (RSIs), enhanced productivity, and improved product quality.
Calculating Budget and Savings
Initial Investment and Annual Savings: We consider replacing one employee, focusing on the specifics:
- Annual Hours Worked: 2,080 hours (40 hours per week x 52 weeks).
- Initial Annual Salary: £11.44 per hour x 2,080 hours = £23,795.20.
Additional Employment Costs Explained: Beyond the basic salary, businesses must cover:
- Pensions: Typically, a minimum of 3% employer pension contributions on qualifying earnings.
- National Insurance (NI): Employers are responsible for NI contributions at a rate of 13.8% on earnings above £9,500 annually.
Including these costs, the total employment cost considering additional expenses (12% additional for simplicity in calculations) would be:
Total Employment Cost=£23,795.20×1.12=£26,650.62 per year total Employment Cost=£23,795.20×1.12=£26,650.62 per year
One-Year Payback Budget: Considering a corporate tax rate of 25% and qualification for 100% Capital Allowance, the effective first-year outlay, after-tax savings from a £35,534.16 investment, is:
Net Cost=£35,534.16−(£35,534.16×0.25)=£26,650.62Net Cost=£35,534.16−(£35,534.16×0.25)=£26,650.62
This amount aligns exactly with our calculated annual savings from labour costs, indicating a potential one-year payback on the investment.
So, the capital expenditure budget for a machine saving just ONE minimum wage employee in the UK, with payback within ONE YEAR is £35,534.16!
10-Year Savings Projection: With a 2% annual increase in the minimum wage, the cumulative savings over 10 years, factoring in wage inflation, would approximate £291,817, with a net profit of £256,283 after subtracting the initial capital expenditure.
Profound Savings Beyond Direct Labour Costs
Reducing Costs Associated with RSIs and Unplanned Absences: By automating tasks with a labelling machine, businesses can significantly reduce the incidence of RSIs, which are prevalent in manual labelling tasks. The elimination of unplanned absences, such as sick days, ensures continuous productivity and stability in operations.
Productivity and Quality Improvements
Enhanced Output and Consistency: A labelling machine typically operates faster than human workers and with greater consistency, enhancing both productivity and product quality. This automation can crucially improve customer satisfaction and compliance with strict labelling regulations.
Reduced Management Overhead: Labelling machines do not require HR management, thus reducing administrative overhead related to recruitment and labour law compliance. This streamlined operation allows businesses to allocate resources more efficiently.
Choosing the Right Partner
Importance of Quality and Support: While the financial case for labelling automation is compelling, the choice of machine and support is crucial. It is vital to select a proven partner with machines designed for long-term operation and backed by reliable support. Quality machinery and dependable service are essential for realising projected savings and productivity gains.
Conclusion
Investing in a labelling machine to replace just one full-time employee providing like for like productivity would payback a capital expenditure of £35,534.16 in just ONE YEAR.
After consideration of this expenditure, it would increase a business’s profit by more than a Quarter of a million pounds over a 10 year term, even if we consider a modest maintenance budget.
This is not an ROI calculation (Return on Investment): ROI factors in the additional profit that could be produced by an investment which will be specific to the business making the investment. Likely this only adds to the argument for labelling machinery automation.
But a closing thought to consider, is that most businesses are constrained by their workforce – “Good Staff” in simple layman’s terms. This article is based on reducing the staffing headcount, but the reality is, in almost all cases, where a labelling machine replaces manual labour, ‘Good Staff’ are redeployed to do more productive things, and who knows what the Opportunity Cost of them not doing this is.
*This article is meant only for illustration of the points and the accuracy of the calculations and figures used cannot be guaranteed. Please do not rely on these figures and ensure you check with your qualified financial advisor.
