Will the New National Living Wage Restrict Business Growth?

A new National Living Wage for the over-25s, of £7.20 per hour, will be introduced from April 2016 and it is expected that this will rise to £9 per hour by 2020. This compares to the current Minimum Wage of £6.70 per hour.

It is anticipated that under-pressure employers – particularly employers of large numbers of staff – collectively face paying out billions of pounds in extra wages and tax over the next few years, following the introduction of this new wage standard. The expectation is that employers in the retail and hospitality sectors will be hit the hardest because they presently hold two-thirds of workers on the Minimum Wage.

However, other than simply applying a burden of cost on these businesses, the worry is that the changes could inhibit the future growth of firms, as suggested by Manpower’s recent survey of 2,100 employers. The survey reported that many employers were actually scaling back recruitment plans for the rest of the year, partly as a result of the new legislation. Furthermore, employers were attempting to avoid paying the new wage rate by using groups of self-employed workers and younger workers, who are not entitled to the National Living Wage.

It is also worth noting that the effects are already being felt in the wider jobs market, with the outlook the least optimistic for three years and job prospects dwindling in the run-up to Christmas.

If your company is facing tough financial challenges, then a confidential discussion – at an early stage – with an experienced and qualified specialist to talk through the range of options available may well be an appropriate course of action. Please contact us if you would like an initial consultation, free of charge.