Taking proactive stance on National Living Wage – business survey

29 October 2015

We recently surveyed 135 businesses with an average of 11,000 employees. The results 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.

We surveyed the businesses to understand how they are preparing for the introduction of the new National Living Wage. According our survey, those organisations which currently have a large number of employees earning below £7.20 an hour, will be affected from the first year, and can expect to 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.

The findings suggests that businesses should start planning on how they will implement the National Living Wage now, even if they won’t be impacted immediately 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 also for 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 surveyed (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

 

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.

This 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 adapt quickly 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, which does not involve simply passing them on to consumers or reducing headcount.

 

John Harding | Partner in Tax
Email | +44 (0) 161 247 4542

 

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