Will the living wage impact your business?

This year’s budget announced that minimum pay for the over 25s, rebranded as the “national living wage”, will increase from £6.50 an hour at present to £7.20 in 2016, before rising to at least £9 by 2020 under the chancellor’s plan. However recent research has raised significant concerns about the countermeasures which big businesses may take to pay the national living wage.

The Office for Budget Responsibility, which produces independent forecasts for the government, has estimated that the national living wage will lead to 60,000 job losses and reduce GDP by 0.1% by the end of the decade. But it also warned that the response of businesses was “subject to significant uncertainty”.

Whilst the Government is suggesting that up to 6 million workers will get a pay rise as a result of the living wage the independent forecast indicates that the impact of increasing pay to at least £9 by 2020 will be material for the business world – and in particular for organisations with high numbers of employees who are currently paid the minimum wage. The move towards higher hourly rates could reduce profits, resulting in potential job losses. The move has been criticised as being a “risky strategy” that may not, in the long run, boost investment, productivity and living standards. There is also the added suggestion that some of the employees who will receive a pay increase will lose out on family tax credits and so therefore will be no better off.

There has been criticism of the Government’s move as it does not take account of businesses who may offer benefits other than simply hourly pay – such as staff discount, share schemes, pensions. These additional benefits result in better packages but are not included as part of the living wage. Will this therefore mean that such staff benefits are removed as we move towards 2016 and the introduction of the living wage?

Undoubtedly organisations will have to start to consider the impact of this move now –and it may be that part of this consideration is examining the overall package provided to employees to ensure that the living wage commitment is made, whilst still being sufficiently competitive to retain valued staff who will contribute to the organisation’s productivity.

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