Implementing the national living wage will cost charities almost £3 million when it comes into effect on 1 April next year. But maintaining the differentials further up the pay scale could add £7 million to the bill, according to data from XpertHR.
On the day that the living wage that the Living Wage Foundation uses increases from £7.85 to £8.25 an hour (and from £9.15 to £9.40 in London), research from XpertHR reveals that, while some employers broadly welcome the age-related national living wage announced by the Chancellor in his Summer Budget, others are less enthusiastic about this extra level of wage regulation.
XpertHR’s survey of 313 private-sector organisations reveals that one quarter would need to increase the wages of at least some staff in order to meet the £7.20 an hour rate for over 25s from 1 April 2016. Overall, this equates to around 8% of their workforce. But the burden will fall much heavier on the smallest employers – almost 17% of the workforce in companies with less than 250 employees will be affected, compared with less than 4% in the largest organisations employing 1,000 or more staff.
Organisations also expressed concerns about how to handle pay differentials – almost half said that, having moved relevant employees onto the national living wage, they would also have to increase salaries of other staff in order to maintain differentials. However one-third said that differentials would have to be squeezed rather than maintained.
Paying for this new initiative is also taking some planning. Almost a quarter of organisations reported that they would make a smaller across-the-board pay rise than planned next year, in order to pay for the national living wage. But one-third were unsure, suggesting that the level of the 2016 pay award for employees paid above the national living wage is still very much up in the air.
While around 40% of employers expressed concern that the national living wage will add complication to the existing low pay arrangements, one-third said that it is not high enough, and should have been set at the level used by the Living Wage Foundation. But at £1.05 an hour higher than the national living wage, many businesses are likely to be unable to afford the cost of such an uplift for all employees.
XpertHR Pay and Benefits editor Sheila Attwood said:
"There are two key issues that employers need to consider when implementing the national living wage: how it is going to be funded; and whether pay differentials are going to be maintained. Our research shows that maintaining differentials could more than double the cost of the national living wage to business."