Businesses need to take proactive stance on National Living Wage – business survey

A new survey of 135 businesses with an average of 11,000 employees reveals that they expect to pay an extra £1.6m on average each in wages in 2016, and up to £11m more by 2020 due to the introduction of the National Living Wage. Retailers expect the biggest wage bill increases next year.

PwC surveyed the businesses to understand how they are preparing for the introduction of the new National Living Wage. According to the survey, those organisations which currently have a large number of employees earning below £7.20 an hour, and will therefore be affected from the first year, will typically see their wage bill rise by £2.3m in 2016 and £15m by 2020. 

Those employers surveyed say that nearly a quarter of their workforce (23%) are currently paid less than £7.20 an hour and nearly four in ten (39%) are currently paid less than £9 an hour – the target wage by 2020.

PwC suggests that businesses should start planning on how they will implement the National Living Wage now, even if they won’t be immediately impacted in 2016. This is a chance for organisations to consider where they want to position themselves in the market and review their pay and benefit structures accordingly. It is important that any changes are fit not only for the National Living Wage but broader pay changes. These changes include increasing pension auto enrolment contributions, holiday pay changes, the new apprenticeship levy and gender pay gap reporting.

Over half of employers (57%) say they are likely to spend more on their wage bill to maintain pay differentials between their lowest pay bands. In the most impacted sectors, we anticipate the cumulative impact of these costs will drive wider business innovation.

Around a third of respondents (32%) say they are planning to pass on the increased costs to customers and over a quarter (26%) say they plan to reduce their headcount due to the increased wage bills. Half of respondents say they are planning to change their pay and grading structures in response to the National Living Wage.

The table below sets out the expected wage bill increases for the different sectors based on the survey respondents.

Sector	Predicted wage bill   increase in 2016 (each)	Predicted wage bill   increase by 2020 (each)
Retail	£3.8m	£25.6m
Healthcare	£2.5m	£14.3m
Hospitality and leisure	£2.2m	£13.2m
Transport and logistics	£0.6m	£9m

John Harding, employment tax partner at PwC, said:

“The National Living Wage will be a great boost for millions of workers. Businesses have been given time to prepare for these changes and should be using this as an opportunity to introduce wider workforce interventions and technology to improve productivity, rather than defaulting to passing the costs on to consumers.

“The National Living Wage announcement is already changing the competitive landscape in the most impacted sectors. How organisations react to this change will set them apart for the future. Given the timetable of proposed increases, even those employers currently paying above £7.20 an hour need to be wary of complacency. Employers who are able to quickly adapt to these changes and embrace them are most likely to thrive as they will be best positioned to attract and retain talent.

“While many employers should be able to afford the increase to their wage bill, the disproportionate impact on sectors employing a large number of lower paid workers such as retail, transport and logistics, healthcare and hospitality and leisure can’t be ignored. Organisations must have a plan to deal with these costs, that isn’t simply passing them on to consumers or reducing headcount.”

Ends 

Notes to editor:

1. PwC is a Living Wage accredited employer and supports the new National Living Wage
2. PwC surveyed 135 organisations across a broad range of sectors and of varying sizes in July and August 2015. The £1.6m wage increase for 2016 is an average for all 135 businesses surveyed by PwC (including those that did not expect any additional costs in year one)
3. The £11m wage increase for 2020 is an average for all 135 businesses surveyed by PwC (including those that did not expect any additional costs in year one). Of this increase, £6m is due to the National Living Wage and £5m would arise anyway due to assumed National Minimum Wage increases
4. The projected wage impact figure for 2016 of £2.3m counts only those employers who identified a cost impact in April 2016
5. The projected wage impact figure by 2020 increases to £15m if only those employers who identified a cost impact in April 2016 are considered. Of this, £8m of this due to the National Living Wage and £7m being assumed increases in National Minimum Wage