HR · 18 November 2015

Half of all employers will be affected by the National Living Wage

A quarter of small firms will raise their prices because of the National Living Wage
A quarter of small firms will raise their prices because of the National Living Wage

More than half of all employers said the incoming National Living Wage will have an effect on their wage bill, according to the CIPD and the Resolution Foundation. Small firms are more likely to raise prices as a result of the incoming change.

The survey of 1,037 employers found that the higher wage floor will have its greatest impact on retail and hospitality sectors, with over three-quarters of employers saying their wage bill will be affected. Over two-thirds of employers in the healthcare sector (68 per cent) also said they would be affected.

When asked to name the three most important actions they plan to take in response to the NLW, which comes into effect next April, employers were most likely to say they intended to manage these higher costs by improving efficiency or productivity (30 per cent said they would aim to do this).

This was followed by taking lower profits or absorbing the costs (22 per cent), reducing overtime and bonuses (16 per cent), raising prices (15 per cent) and reducing the number of employees through redundancies or slower recruitment (15 per cent).

The responses differed by type of employer, with small businesses much more likely to raise prices – a quarter of them said they would do so – as opposed to larger companies (with 250+ staff) at ten per cent.

Similarly, public sector employers were more likely to cut the size of their workforce as a result of the introduction of a National Living Wage – 21 per cent said they would cut the workforce compared to 13 per cent of private sector firms.

While the CIPD and RF said it was good news so many employers intended to raise productivity in response to the new higher wage floor, they warned that securing these gains may be difficult.

Conor D’Arcy, policy analyst at the Resolution Foundation, said it was important “that firms are given the necessary support to boost productivity”.

Just over a quarter of those surveyed felt that cuts to corporation tax and national insurance would offset at least some of the extra wage costs, though only one in ten said the tax cuts would offset most or all of the increased costs. The research pointed out that many employers hadn’t assessed the full impact of the range of taxation changes, with 30 per cent unable to give a response.

Mark Beatson, chief economist at the CIPD, said: the National Living Wage was “a bombshell for most employers” when it was announced in July and as it comes into force in April “does not give employers a lot of time to prepare”.

“Hence we found 26 per cent of employers in September saying it was still too soon to say how they would manage the cost implications,” he added.

With George Osborne’s Autumn Budget on the horizon, Beatson said more support could be provided to firms grappling with the National Living Wage “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”.

Recent research from Xactly said UK employees thought the best route to increased productivity would be through financial incentives, but nearly half of them won’t have the opportunity to receive one.

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ABOUT THE EXPERT

Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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