Payroll

Employers forced to lower profits and hike prices to absorb Living Wage rise

Employers have had to “accept” lower profits and hike their prices to afford rises in the National Living Wage (NLW), according to a new report.

The changes employers have had to make to their business were revealed in the new Low Pay Commission’s 2018 report.

It found that business owners had decided to take a hit to their profits, raise prices for their customers where possible, restructure workforces and narrow the gaps between pay bands. Employers told the LPC that improving productivity would be the key to managing future cost increases.

However, despite the changes, the LPC’s analysis and research did not find clear evidence of any negative effects on employment from the increased NLW.

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Inside story: The National Living Wage impact on small business

Despite largely having been able to meet the challenges posed by the National Living Wage, the impact has been that small business profits have suffered.

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The report found that increases to the NLW has raised the pay of up to 5 million workers this year. This, the Commission said, was fewer than in 2017 but still covered a fifth of workers aged 25 and over.

The 4.4% increase in the NLW pushed pay up faster than average not only for those on the rate, but also for the bottom 20% of earners – those earning up to £9 per hour.

This is because employers have sought to maintain a gap between job grades or have kept their pay rates above the NLW.

In total, 1.6 million people were paid at or below the NLW, equivalent to 6.5% of all workers aged 25 and above; roughly the same proportion as in 2016 and 2017. Almost two-thirds of those paid the NLW, a million workers, were women.

Chair of the Low Pay Commission, Bryan Sanderson, said: “That five million workers received higher pay rises in April than they would have done without the NLW shows how significant an intervention it has been in the labour market.

“So far, the evidence suggests the NLW has been successful in raising pay without causing unemployment, but employers have had to adjust in various ways.”

Read more about UK employment law:

• Can I ban my staff from smoking on their break at work?
• New payslips deadline looming: What employers need to do now
• Can I require my employees to pay for their own uniforms?

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