The new “national living wage” will push up wages at more than half of all employers, forcing many of them to seek savings through improved productivity, according to a major survey.
It found that 54 per cent of respondents said it will have an effect on their wage bill, when comes into effect next April, according to the CIPD, the professional body for personnel staff and Resolution Foundation.
The national living wage is due to take effect from 1 April 2016 and will push up the minimum hourly rate for workers aged 25 or older from £6.70 to £7.20.
The survey of more than 1,037 employers revealed that the higher wage floor will have its greatest impact in retail (79 per cent) and hospitality (77 per cent), and in the healthcare sector (68 per cent).
Mark Beatson, Chief Economist at the CIPD, said: “The National Living Wage was a bombshell for most employers when it was announced in July. It comes into force next April, which does not give employers a lot of time to prepare. Hence we found 26 per cent of employers in September saying it was still too soon to say how they would manage the cost implications.
“For those that have started to think about the consequences, the emphasis on efficiency rather than cost-cutting is welcome. However, our research also suggests that only a small proportion of firms see any substantial connection between the National Living Wage and other changes to taxes and National Insurance Contributions.
“If the Chancellor wants to provide any more support for businesses grappling with the National Living Wage in the Autumn Statement, it might be better delivered through enhanced business support or special help for the care sector rather than shaving small amounts off general business taxation.”
The investigation into how firms in low-paying sectors will adapt to the National Living Wage, found that 22 per cent of firms said they will taking lower profits and absorbing costs, 16 per cent will reduce overtime and bonuses, while raising prices 15 per cent plan on reducing the number of employees through redundancies or slower recruitment.
The CIPD and RF welcome the fact that so many employers plan to raise productivity in response to the new higher wage floor. However, they warn that securing these gains may be challenging for many firms.
Conor D’Arcy, Policy Analyst at the Resolution Foundation, said: “The new National Living Wage will have a huge impact on the labour market when it comes into effect next April, with millions of workers set to get a pay rise and half of all employers saying they’ll be affected.
“It’s encouraging that so many firms say that they’ll respond to the new higher wage floor by improving efficiency. But actually delivering this will prove challenging in many sectors, and it’s important that firms are given the necessary support to boost productivity.”