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The National Living Wage – what has it meant for your business?

The National Living Wage – what has it meant for your business?

We examine what impact the introduction of the National Living Wage has had on businesses

Date: Monday 18th July 2016

By Aisha Oakley, Head of HR Outsourcing

With the introduction of the National Living Wage (NLW) in April of this year, what have been the impacts on businesses in the UK?

The National Living Wage (NLW) is set at £7.20 for workers aged 25 or over who are not in their first year of apprenticeship. It now applies to all UK businesses and is set to increase annually rising to £9 an hour by 2020.  This is all part of the Government’s plan to create a higher wage, lower tax and lower welfare society.

The NLW is only applicable to workers aged 25 or over. It’s not to be confused with the National Minimum Wage which applies to people aged 24 and under.

When the NLW was introduced, businesses were worried that the increase could lead to them having to make redundancies across the board in order to compensate for the rise in wages.  This however has not been the case for many.

Instead, business have tried to find ways around the changes by either raising their prices or reducing profit rather than cutting costs.  In a bid to make up the deficit, some organisations intend to put more pressure on their existing staff.

This news comes after the Office for Budget Responsibility predicted that the introduction of the NLW would lead to 60,000 job losses by 2020. 

However, in light of the recent vote for the UK to leave the EU, the decision could affect the NLW policy and could lead to the reshaping of low pay sectors and how they operate.  With the outcome of Brexit still unclear, this could mean lower wage growth, which in turn will reduce the current projected real terms value of the NLW by up to 40p an hour by 2020.

Large companies such as B&Q, Tesco and Caffe Nero as well as the John Lewis Partnership have reduced some staff payments or perks due to the recent increase.

If you missed our article on top tips for ensuring you comply with the NLW regulations, here’s a reminder:

  • Payroll review 
    Ensure that your hourly rates match the NLW. Ensure that your systems account for dates of birth and adjusts wages accordingly for example when an employee turns 25 they are eligible for the NLW. Check that part-time and casual workers are being paid appropriately.
  • Recruitment
    It may be worth hiring an apprentice to help reduce your wage bill and spread costs.
  • Contracts
    Review your contracts to guarantee that they stipulate that employees will be paid NLW.
  • Budgets, profits and costs
    Assess the cost of higher remuneration on bonuses, pension contributions, holiday and sick pay. It may be necessary to reduce outgoings and, or increase your income. Additionally you may decide to reduce hours or employees.
  • Changing your business structure
    Investing in equipment and automation will reduce the number of employees needed for routine tasks allowing them to focus on people skill-based tasks. It could be worth embracing remote and flexible working practices to help reduce wage bills allowing your SME greater flexibility.

If you need some advice on how the National Living Wage could affect your business or need us to take a look into how you can keep your people happy while ensuring your business is profitable then get in touch by emailing