National Living Wage: How will it affect employers?

Over half of all employers (54 per cent) say the new National Living Wage (NLW) will have an effect on their wage bill, with three in ten of those organisations that will be affected by the new higher wage floor planning to raise productivity in response.

This is according to a new survey published today by the CIPD, the professional body for HR and people development, and the Resolution Foundation (RF).


Retail hardest hit

The survey of 1,037 employers, which launches a joint CIPD/RF investigation into how firms in low-paying sectors will adapt to the National Living Wage, shows that the higher wage floor will have its greatest impact in retail (79 per cent) and hospitality (77 per cent), where over three-quarters of employers say their wage bill will be affected. In addition, more than two-thirds of employers in the healthcare sector (68 per cent) will be affected.

Overall, almost one in five employers (18 per cent) say they will be affected to a large extent by the NLW, a figure that rises to around a third in retail (33 per cent) and hospitality (32 per cent).

Fortunately, fewer than one in ten employers say they will reduce the basic pay growth rate for the rest of the workforce (9 per cent), reduce hours (9 per cent), hire more workers under 25 (8 per cent), hire more apprentices (8 per cent) or cancel/scale down plans for investing in or expanding the business (7 per cent).


Considerable reach 

This finding supports recent RF research, which estimated that 2.8 million workers would directly get a pay rise as a result of the new National Living Wage by 2020, with a further 3.2 million workers receiving an indirect benefit as employers seek to maintain pay differentials between staff.

However, 46 per cent of employers who expect to be affected by the National Living Wage do not yet know what impact it will have on pay differentials within their business, so there is still considerable uncertainty over what the effects will be.

Mark Beatson, chief economist at the CIPD, said: “The National Living Wage was a bombshell for most employers when it was announced in July.  It comes into force next April, which does not give employers a lot of time to prepare.  Hence we found 26% of employers in September saying it was still too soon to say how they would manage the cost implications.

“For those that have started to think about the consequences, the emphasis on efficiency rather than cost-cutting is welcome.  However, our research also suggests that only a small proportion of firms see any substantial connection between the National Living Wage and other changes to taxes and National Insurance Contributions.

“If the Chancellor wants to provide any more support for businesses grappling with the National Living Wage in the Autumn Statement, it might be better delivered through enhanced business support or special help for the care sector rather than shaving small amounts off general business taxation.”