National Living Wage: Business has its say

01 April 2016 -

“LivingWage"

As the National Living Wage comes into effect; new research reveals what UK companies think of the new pay threshold

Jermaine Haughton

Half of UK businesses believe their productivity will be boosted by the new National Living Wage, according to new research that highlights the cautious optimism held by British bosses towards the worker remuneration changes.

Affecting around six million workers, the new government legislation that comes into force today requires workers aged 25 or over, and not in the first year of an apprenticeship, to be paid a minimum of £7.20 per hour.

This new standard provides a rise in earnings for those adult workers receiving the government's national minimum wage of £6.70 per hour, which will still be in place for those aged 16 to 24.

Despite statistics showing that some 80% of businesses across various sectors are already paying adult employees at least £8.25 per hour, a succession of media reports show concerns from business leaders over the effect the new law will have on their already squeezed finances.

London law firm Bircham Dyson Bell’s survey of more than 100 entrepreneurs reflects the mixed feelings towards the new National Living Wage, with one third of bosses believing it will have a positive impact on their business, and more than half admitting they are still unsure as to whether the impact of the increased National Living Wage will be positive or negative.

At a time when only 49% of UK workers say they feel valued at work, almost three-quarters (73%) of entrepreneurs think the chief benefit will be much-needed improved employee morale.

Similarly, 56% said the introduction of higher pay under the National Living Wage will improve their reputation, with over half (55%) believing that it will improve the ease by which they recruit talent.


All you need to know about the new National Living Wage

One of the standout takeaways from the study, however, is the belief of 48% of entrepreneurs supporting the new wage standards that productivity will improve as a result of the changes.

Britain’s poor productivity record has been highlighted by government figures showing the biggest gap with other leading western economies since modern records began in the early 1990s. The Office for National Statistics stated output per hour worked in the UK was 18 percentage points below the average for the remaining six members of the G7 group of industrial nations in 2014.

Human Resources chief Breda Cullen, managing partner of HR and employment law advice specialists HR Team, said employers should view the National Living Wage introduction as a trigger to ensure that they are getting the most from their team.

"Strategically increasing productivity in the workforce may not be an instant fix but is a much more prudent long term investment than a destructive reaction to downsize workforces,” she said. “It's vital employers are ready for this change and have the appropriate mechanisms in place in order to meet their new wage obligations and avoid penalties.”

Only 15% of those surveyed believe that the National Living Wage will have a negative impact on their business, but of those that do 70% stated that increased labour costs are their main concern.

Support services company Interserve, for example, has said the extra annual wage bill for its 15,000 cleaners could total £15m - the equivalent of 12% of its annual profits.

The UK law firm’s report also shows that a third of bosses believe that the implementation of the National Living Wage will lead to job losses, as supported by The Office for Budget Responsibility’s estimate that the extra costs could mean up to 60,000 job cuts.

Some 38% of entrepreneurs said that the National Living Wage’s introduction will reduce recruitment and almost half (48%) believe that investment will be reduced in other areas of business to meet the increased cost.

Hollie Gallagher, head of the entrepreneurs team at Bircham Dyson Bell, said: “There are real concerns for SMEs about how the extra cost will be met – with a third worried it will lead to job losses and almost half of the respondents believing it will reduce investment in other parts of the business.

“But these statistics are reassuring because businesses are largely positive in their assessment of the impact the National Living Wage will have – with many seeing the benefits that higher pay can bring, such as increased productivity and improved employee morale.

“The new legislation will certainly change the landscape of pay for SMEs, but as half of respondents are still unsure as to whether the impact of the increased wage will be negative or positive, we wait to see how significant the consequences of its introduction will be.”

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