Will the National Living Wage increase the use of zero hours’ contracts?

In last year’s budget, the chancellor announced a compulsory national living wage for over-25s from April this year that will rise to £9 an hour by 2020.

But according to a survey conducted by the Resolution Foundation and CIPD, the new “national living wage” will push up wages at more than half of all employers, forcing many of them to seek savings through improved productivity. The survey of 1,037 employers showed that the higher wage floor will have its greatest impact in retail (79%) and hospitality (77%), where over three-quarters of employers say their wage bill will be affected and around a third in each will be affected significantly.

54% of respondents said it will have a material effect on their wage bill. The national living wage is due to take effect from 1 April 2016 and will push up the minimum hourly rate for workers aged 25 or older from £6.70 to £7.20.

More than two thirds of employers in the healthcare sector (68%) will be affected, though they are less likely to seek a rise in productivity. One in five public sector organisations said their answer to the higher wage threshold would be to make bigger cuts in staff numbers than previously planned.

Respondents were given the chance to nominate three methods they would use to compensate for the higher wage bill. More than one in five employers planned to accept lower profits (22%); 16% said they would reduce overtime and bonuses; 15% said they would raise prices; while 15% said they would reduce the number of employees through redundancies or slower recruitment.

Last year, the Office for Budget Responsibility, which analyses government spending policies, suggested that the national living wage could result in 60,000 job losses. There has also been a suggestion that employers will stop offering full time permanent contracts, instead favouring an increase in the use of zero-hours contracts –to minimise the impact on total labour costs.

Research has shown that workers on zero-hours contracts earn less per hour than permanent staff in similar roles and are often denied benefits given to permanent staff such as sick pay. 40% of zero-hours workers earn less than £111 a week, the qualifying threshold for statutory sick pay, compared with 8.5% of permanent employees.

A study published by the TUC has shown that average weekly earnings for zero-hours workers are £188, compared with £479 for permanent workers.

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