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How companies have dealt with the effects of the National Living Wage

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

Introduced in April 2016, the National Living Wage (NLW) was introduced to make sure that work pays for those in the lowest paid jobs in society. It also reduces the reliance on the state topping up wages through the benefits system. This is something the Conservative Government want to achieve moving the country from low wages and high benefits to higher wages and a lower welfare society.

The NLW only applies to workers aged 25 and over and has seen an increase of 50p on the minimum wage this age bracket can be paid. However, for those aged 16-24, the National Minimum Wage still applies at its current rate.

When the policy was announced earlier this year, there was a lot of talk of job cuts and a potential impact on business finances, perhaps pushing some out of business altogether. These stories of fear about the changes have turned out not to be true after recent results have been published.

These figures come from a survey of 500 businesses that show the majority have not cut any jobs instead taking the financial hit themselves or raising prices of products and services. These findings have come as a surprise to many people, especially those in the business and financial sectors, who were expecting a much bigger hit which would have raised unemployment overall.

Instead, earlier this month, it was announced that unemployment had fallen which is great news for the economy and the Government. That news alongside the findings of this survey, indicate that the increase in wages hasn’t been as bad for employers and businesses as first thought.

As staff from the businesses surveyed have not lost their jobs, business owners were asked how they have dealt with the wage increase and the findings are quite surprising. 36% of the businesses surveyed have increased their prices to accommodate the wage rise whereas 29% have simply taken lower profits.

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These are the two most common approaches businesses have taken, both of which could hurt them overall due to loss of sales or loss of profit. What sort of impact that will have on the business long term is yet to be seen, but short term things must still be working well for the businesses.

Other approaches taken by businesses include asking workers to do more (16%), investing more in training (15%), using less labour (14%) and investing in more technology (12%). Using less labour and asking workers to do more seem very much along the same lines of increasing worker productivity for their increased wage.

Investing in technology and training is a good thing for employees to feel more secure and learn more skills in their current roles. Many businesses have not been investing in their staff through training in the last few years so to have this push into staff investment is good progress for the different sectors involved.

On the other hand, 8% of businesses surveyed have scaled back or cancelled altogether their plans to invest in staff and business. This is bad news for those looking to progress further in their career and gain further skills, possibly affecting the business in the future.

Some businesses such as John Lewis, Tesco and B&Q have removed or reduced certain staff privileges, payments and perks. These include lowering bank holiday pay, overtime pay and bonuses, a technique around 8% of businesses have used to compensate extra wage payments.

However, some businesses have simply hired more workers under the age of 25 in order to save themselves money and not have to pay the increased wage. Zero hours contracts have also become more popular over the last couple of months as 5% of employers have turned to them in order to combat the NLW increase.

On the surface, it seems like this survey is producing good news, specifically for employees who have not lost their job as a result of the NLW. However, in a minority of situations this clearly has not benefitted staff.

Only time will tell the overall effects of this wage increase for the over 25’s but it seems likely we will see the results soon enough.

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