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Half of UK employers will be affected by National Living Wage

More than half of all employers (54%) say the new National Living Wage (NLW) will have an effect on their wage bill, with three in 10 of those organisations affected by the new higher wage floor planning to raise productivity in response. This is according to a new survey published today by the CIPD, the professional body for HR and people development, and the Resolution Foundation (RF).

The survey of 1,037 employers, which launches a joint CIPD/RF investigation into how firms in low-paying sectors will adapt to the National Living Wage, shows that the higher wage floor will have its greatest impact in retail (79%) and hospitality, (77%) where more than three-quarters of employers say their wage bill will be affected. In addition, more than two-thirds of employers in the healthcare sector (68%) will be affected.

Overall, almost one in five employers (18%) say they will be affected to a large extent by the NLW, a figure that rises to around a third in retail (33%) and hospitality (32%).

Asked for the three most important things they plan to do in response to the NLW, employers are most likely to say they intend to manage these higher costs by improving efficiency and productivity, with almost a third (30%) of employers intending to do this.

Taking lower profits and absorbing costs is the next most popular response, (22%) followed by reducing overtime and bonuses, (16%) raising prices (15%) and reducing the number of employees through redundancies or slower recruitment (15%).

Fewer than one in ten employers say they will reduce the basic pay growth rate for the rest of the workforce, (9%) reduce hours, (9%) hire more workers under 25, (8%) hire more apprentices, (8%) or cancel/scale down plans for investing in or expanding the business (7%).

The CIPD and the RF note that the responses differ by type of employer. For example, small employers (1-249 staff) are significantly more likely to say that they will respond by raising prices (25%) than larger employers, (250+ staff) of whom just 10% say they will respond in this way.

The survey also finds that of those firms who say they’ll be affected by the National Living Wage, 26% say that it will reduce pay differentials between those affected and their supervisors/managers.

However, with almost as many employers (20%) saying that they would maintain pay differentials, the NLW also looks set to have a positive ‘ripple effect’ for workers already earning above the new wage floor.