HR · 15 September 2015

Small businesses, hospitality and retail sectors to be hit hardest by national living wage

Hospitality is the sector expected to see the biggest increase to its wage bill at 3.4 per cent by 2020
Hospitality is the sector expected to see the biggest increase to its wage bill at 3.4 per cent by 2020

A report carried out by think tank Resolution Foundation found that three sectors – hospitality, retail and support services – will be most affected by the national Living Wage, while small businesses will also be significantly worse off compared to larger companies.

The national living wage, as set out by chancellor George Osborne, is to come into effect from April 2016 as a minimum wage for those aged 25 and over. It is expected to rise to more than £9 in 2020, and is intended to be equal to 60 per cent of the typical wage of workers aged 25 and over.

The Resolution Foundation had previously estimated that six million workers, or 23 per cent of all employees, stood to benefit in 2020 as a result of the introduction. On average, across the six million affected, the living wage is expected to add £760 annually to pre-tax wages. Britain’s total wage bill is expected to rise by 0.6 per cent by 2020.

The latest research investigated how the added cost will be distributed across employers – looking at industry, occupation, sector and size. It found that the change seemed to “represent only a relatively small additional cost for some employers while looking more considerable for others”.

It found that in 2020, one in four (23 per cent) workers were set to gain, but focusing on the largest sectors, 2.7m of those employees set to benefit (46 per cent of all those affected), work in just three high-level industries – wholesale and retail, hospitality and support services. Hospitality in particular is set to face the most challenging circumstances of the sectors considered, with the biggest increase to its wage bill at 3.4 per cent in 2020.

Micro firms also look likely to be hit harder than larger companies, with those employing fewer than ten workers facing a 1.5 per cent increase in their total wage bills in 2020. Larger businesses employing between 250 to 4,999 employees are anticipated to see wage costs rise in line with the average of 0.6 per cent.

The introduction of a higher employment allowance, as outlined in the Budget, was unlikely to compensate for the higher wage bills small firms would have to cope with, the study found.

“Many of the smallest employers, especially those with employees on low wages and working short hours, will already pay less than £2,000 in employer national insurance contributions and therefore will not benefit from the higher allowance,” it said.

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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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