National Living Wage to hit more than half of employers' wage bills

Think Tank the Resolution Foundation has assessed the potential impact of the National Living Wage.

From 1 April 2016 workers in the UK aged over 25 earning the minimum rate of £6.70 per hour will see a 50p increase. 

Some 54 per cent of those surveyed in the report thought NLW would increase their wage bill. Retail, hospitality and food were the highest scorers.

Top ways to cover the rises were:

Improve efficiency/raise productivity

Take lower profits/absorb costs

Reduce the amount of overtime/bonuses

Raise prices

Reduce number of employees through redundancies and/or recruiting fewer workers

Hiring under-25s not seen as a sustainable answer for most of the 1,037 companies surveyed.

Report authors said: "The findings of this report confirm that a significant share of firms will not be affected by the NLW, or will face only a small increase in their wage bill. At the same time, it is clear that for some employers, particularly those in low-paying sectors, the NLW will raise their labour costs considerably.

"Both the survey and the case study interviews show that, for most employers, cuts to employment levels are seen as either undesirable or impossible. The emphasis from many is on improving productivity. Yet the employer interviews suggest that delivering these productivity gains will prove challenging. While a number of employers had clear plans on how to get more out of their business or employees, others were less sure how to be more efficient, while some questioned the potential for any gains.

"For many, absorbing the added costs of the NLW was seen as the default approach in the short-term with more meaningful adjustments to their business model being seen as possible and more necessary as the NLW increases. Improving workplace productivity, particularly in low-paying sectors, has rarely had any prominence in the many government strategies and plans published to boost national productivity, growth or competitiveness. Much the same can be said about the Government’s productivity plan published just after the Summer Budget. Including these lowpaying sectors in discussions and thinking on raising productivity will be crucial in light of the NLW. While there is no ‘magic lever’ for government to pull, the fact that other advanced economies achieve higher productivity in these lowpaying sectors suggests that some gains are possible."

The Foundation suggested "a coherent strategy on improving workplace productivity, which includes a focus on providing more support for SMEs to encourage and enable them to invest in building their people management capability.

"The data suggest that SMEs are more likely to simply absorb the cost and reduce the pay differentials between employees than large organisations. SMEs are responsible for 60 per cent of private sector employment in the UK but most will never have been involved in any government skills initiative and will lie outside formal supply chains and existing SME networks. At a local level there needs to be much greater emphasis on the provision of high-quality HR support, advice and guidance, driven by clear leadership from bodies such as Local Enterprise Partnerships, Business Growth Hubs and local authorities. More local business support hubs need to be created to provide hard-to-reach SMEs with cost-effective and easy-to-find advice and support to improve their people management capability, as well as to access available public skills funding and high-quality training to get the most from their people and grow."

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