In just a few weeks, on the 1st April, the National Living Wage will come into force. For employees aged 25 or older it will mean a rise in their minimum rate of pay from £6.70 to £7.20 an hour. Here at the IOEE, we’ve taken a look at what the increase may mean for employers and how businesses intend to cover the extra cost.

From next month, workers over the age of 25 will have an extra 50p in their pocket for every hour that they work (so long as they’re not working as an apprentice in the first year of their programme). For employers this means calculating exactly who on their staff is eligible for the rise, rethinking payroll and putting measures in place to meet the extra wages outlay. For some small businesses, particularly those with few people over 25 working for them, the new National Living Wage will not have a particularly large or negative impact. Other businesses that are already paying a more generous hourly rate, likewise may not really notice the new legislation’s impact. However, the National Living Wage will hit over half of employers and some are already taking steps to mitigate its detrimental affect on their bottom line. Research undertaken by think tank the Resolution Foundation along with the CIPD, has demonstrated that around 54% of businesses expect the National Living Wage to increase their wage bill. Some 18% of employers surveyed said that their business would be affected to a ‘large extent’ and that number rises amongst businesses in some sectors. For example, in retail 33% of businesses said they’d be affected to a ‘large extent’ and in hospitality, 32%. By comparison, some sectors seemed relatively unconcerned by the National Living Wage, for example the professional, education and information and communication sectors came in at just 3%, 4% and 6% respectively.

The Resolution Foundation and CIPD survey also asked its 1000 participants how they planned to absorb the higher wage bill. Some 30% of businesses hope to raise productivity, although this was a more popular answer among larger businesses (32%) than smaller ones (25%), possibly because they have the resources to attempt a productivity boost. Other popular solutions included taking lower profits, reducing overtime / bonuses and raising prices.

Meanwhile, recruitment group Manpower has conducted its own research into the possible implications of the National Living Wage. Its results also show that employers started to gear up for the bigger wage bill by scaling back recruitment during the final months of 2015.

James Hick, who is ManpowerGroup Solutions UK Managing Director said: “The National Living Wage is sending shockwaves through the UK labour market. Support services firm Interserve has announced that the extra annual wage bill for its 15,000 cleaners could amount to as much as £15 million, or 12% of its annual profits. This sentiment was echoed by social care company Mears Group, which estimates the cost of meeting the wage hikes for its 4,000 care workers will be £5 million, or 10% of its annual profits. Faced with a wage bill of this size, some employers are thinking twice about taking on new workers.”

As the days go by and we move ever closer to the fateful 1st April 2016, employers of all sizes across every sector should be fine-tuning their National Living Wage strategies to ensure the new legislation doesn’t unbalance their books and leave them in hot water.

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With the National Living Wage about to become a reality, how concerned are you about how your business will be impacted?

A.  Very concerned, I think it could cause real financial challenges.
B.  Moderately concerned, it could be an issue but I believe we can weather it.
C.  I have no worries whatsoever.
 
Please click one of the answers above. 
The results of this survey will be revealed in next month's newsletter.

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