In Matt Southall's latest Western Mail column, Acorn's Managing Director discusses the National Living Wage, and the impact it will have on businesses.
The impact of the National Living Wage will vary according to the size of the business and the sector it is operating in.
This Friday, April 1, sees the UK-wide introduction of the National Living Wage (NLW).
This was one of the headlines from the Chancellor’s July Budget and will see everyone over the age of 24, and not in the first year of an apprenticeship, entitled to earn £7.20 an hour, up from £6.70.
On the face of it, to earn an extra 50p an hour might not seem like a massive change but for many employees and businesses it will have a big impact.
Six million people currently earn less than the National Living Wage and the estimated cost on wage bills is £300bn annually.
For those earning a minimum wage, this is an important development, which will see them taking home up to an extra £1,000 a year, and so will be seen as a positive step by society’s lowest earners.
In terms of the positives for businesses, it is argued that the past has shown an increase in pay for the lowest earners can improve employee morale, benefit the reputation of a business, make it easier to recruit talent, reduce absenteeism, lead to lower staff turnover and improve productivity. However, it isn’t black and white and there are mixed responses to NLW across the business community.
This is in part down to the fact that costs won’t be consistent across the board. For large businesses with a small proportion of low-paid staff for example, the cost is estimated to be less than 1.3% of their wage bill.
By contrast, small businesses may well be hit hardest, and with additional impact of auto-enrolment over the next few months, this may be felt like a double hit on companies that might already be working to tight margins.
Sectors with the highest proportion of unskilled workers on their payroll such as retail, hospitality and manufacturing are likely to feel the greatest impact.
The change has already been met with some concern by the retail sector whose own research has proposed that 900,000 jobs and thousands of shops could go in the next decade because of the joint impact of the NLW and the Apprenticeship Levy.
There are questions also being raised within the health and care sector, which is already finding it difficult to attract and retain staff, about how it will meet the cost increases.
As a business that is in constant dialogue with business people across a wide variety of sectors, we know that there is a mixed view about what will happen from April 1.
This uncertainty is reflected in the recent Jobs Outlook survey by the Recruitment & Employment Confederation (REC), which showed that many businesses are still unsure as to how the change will impact them.
Of those surveyed 14% will be taking on fewer staff than planned, 8% will reduce staff bonuses and overtime, 8% will raise the costs of their goods and services and 2% will be making redundancies.
Thirty-nine per cent don’t currently plan to take any action, 10% say they are not sure and 19% will invest more in training to increase productivity.
So there is much uncertainty, and with many employers adopting a wait and see approach it isn’t any real surprise that we have seen many organisations put a current hold on recruitment.
Whichever way you look at it, this is a significant change that will impact millions of people and thousands of businesses, and I hope that the response will be a positive one. Whatever happens, this will need to be carefully managed to ensure that the benefits are felt across the board.