April 1, 2016

National minimum wage reaches new highs

The UK is about to witness the biggest increase in minimum pay in history, according to a think tank. This will have a major impact for a lot of employers as millions of employees stand to benefit from the changes in the immediate and long term.

Figures from the Resolution Foundation, a think tank that specialises in monitoring the living standards of people on modest incomes, show that the lowest paid workers (full time and part time) over the age of 25 will receive wage increases of at least 10.8% when the national living wage is introduced today (April 1).

October’s increase in the national minimum wage, combined with the 50p hourly boost to pay from the national living wage mean that the UK’s lowest paid workers will see their earnings rise four times faster than the average employee this year.

This is good news for those lower paid employees, naturally. However, some employers have warned that the changes will damage their profit margins and that jobs will go as a result. The Office for Budget Responsibility has also warned that jobs could be affected and has predicted the potential loss of 60,000 jobs.

A 2015 survey carried out by the CIPD and the Resolution Foundation showed that employers are already thinking about what they can and have to do to minimise the impact on their organisation’s profitability as a result of the changes. It found that nine per cent of the 1,037 organisations that took part in the survey plan to reduce the number of hours employees work, eight per cent plan to hire more workers under the age of 25 and 16% plan to reduce overtime and bonuses. Roughly 15% said they would cut their headcount through redundancies or by reducing recruitment. Employers in the public sector were most likely to reduce their workforce (21%), compared to 13% of private sector employers.

However, 30% hope to improve efficiency to offset the costs and 22% say they will absorb the cost. Some, particularly SMEs, plan to pass the cost onto customers – 25% of employers with less than 250 employees say they will have to increase their prices. Only 10% of employers with over 250 employees plan to do so.

Some localities and sectors are expected to be hit harder than others. Employers in the retail and hospitality sectors are expected to feel the pinch – 79% of retail and 77% of hospitality employers said they will struggle with the higher wage bill, according to the CIPD/Resolution Foundation survey. More than two-thirds (68%) of employers in the healthcare sector also expressed concerns.

According to the Resolution Foundation, there are 10 low-pay ‘hotspots’ where at least 30% of workers will be better off from the new changes. Those ‘hotspots’ include Torridge in Devon, Rossendale in Lancashire, Woking in Surrye, Castle Point in Essex, Forest Heath in Suffolk and Mansfield in Derbyshire. London employers and employees will be less affected by the changes – in some London boroughs fewer than one in 10 employees will benefit from a pay rise.

And with the Chancellor George Osborne setting a target of a £9 an hour living wage by 2020, the wage bill costs are only going to get higher.