Living with the National Living Wage
The new National Living Wage means all businesses must pay employees aged 25 or over a minimum of £7.20 per hour. Employees aged under 25 are still covered by the National Minimum Wage.
The introduction – effective from 1 April – is expected to give 1.3 million workers an immediate pay rise but not everyone is in agreement over the benefits of the new rules. Some groups and individuals fear it could lead to job losses and more companies entering into administration or closing down. Some have cautiously welcomed the National Living Wage while others feel it does not go far enough.
The Federation of Small Businesses (FSB) found that more than a third (38%) of smaller businesses expected the introduction of the National Living Wage to have a negative impact on their businesses. More than half, meanwhile, believed that projected rises in the near future would damage their operations. The Government has said it expects the rate to rise to over £9 per hour by 2020.
A little over half of the companies who foresaw negative impacts said they would put off hiring new staff and 50% said they would raise prices to compensate for the changes. More than 40% said they would reduce existing staff working hours and 31% expected to shed jobs.
Mike Cherry, chairman of the FSB, said that extra productivity would need to be achieved in order to enable many businesses to afford the National Living Wage. The independent Office for Budget Responsibility has also warned that 60,000 jobs could go as a result of the National Living Wage.
Sir George Bain, former chair of the Low Pay Commission, dismissed these fears telling the Radio 4 Today programme that he considered them “overblown”. The Living Wage Foundation, meanwhile, welcomed the introduction but encouraged firms to “aim higher” and pay more than the new statutory minimum.
Employers that fail to pay the applicable rate to eligible staff could be hit with fines of up to £20,000, as well as the backdated unpaid wages. This will likely impact firms operating on tight budgets and who may not have high levels of additional finances to cover the extra costs associated with higher wages.
By Phil Smith