National Living Wage to cost large firms an extra £11m by 2020

24 Oct

National Living Wage to cost large firms an extra £11m by 2020

Large employers expect to pay an extra £1.6m in wages in 2016 and up to £11m more by 2020 due to the National Living Wage (NLW), according to research.

Professional services firm PwC surveyed 135 businesses with an average of 11,000 employees to understand how they are preparing for the introduction of the NLW in April 2016, with the initial rate set at £7.20 an hour for workers of 25 and over.

The employers surveyed said 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.

According to the survey, organisations which currently have a large number of employees earning below £7.20 an hour will typically see their wage bill rise by £2.3m in 2016 and £15m by 2020. Retailers expect the biggest wage bill increases next year.

Half of employers said they are planning to change their pay and grading structures in response to the NLW, and over half (57%) said they are likely to spend more on their wage bill to maintain pay differentials between their lowest pay bands.

Around a third (32%) said they are planning to pass on the increased costs to customers and over a quarter (26%) said they plan to reduce their headcount due to the increased wage bills.

John Harding (pictured), employment tax partner at PwC, said: “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.

“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 that isn’t simply passing them on to consumers or reducing headcount.”