Micro businesses face biggest National Living Wage challenge

Micro firms with less than nine employees will find it most difficult to adhere to the new National Living Wage with these businesses expected to face the biggest increase to their wage bill, according to research from the Resolution Foundation.

Micro businesses will experience an average wage bill increase of 1.5 per cent, while large firms with between 250 and 4,999 employees will see an average increase of 0.6 per cent.

Firms within the private sector anticipate average wage bill increases of 0.8 per cent, compared with 0.4 per cent for third sector employers and just 0.2 per cent in the public sector.

Chancellor, George Osborne unveiled the National Living Wage to be paid to employees over the age of 25 in the summer Budget, which will be set at £7.20 an hour from April 2016 and rise to more than £9 an hour by the end of the government’s term in office.

Conor D’Arcy, policy analyst at the Resolution Foundation, believes that although pay increases will be welcome news to employees across the country, it’s not all plain sailing for employers that will have to foot the bill.

“The expected rise will take the wage floor into unchartered territory,” said D’Arcy.

“But with the economy getting stronger the vast majority of employers should be able to afford the new higher wage floor, which will allow their lowest-paid staff to share in the recovery.

“It’s not yet clear how employers will respond, but while some may opt to reduce hours or new hires past experience tells us that most absorb the pressures via some combination of small increases in prices for consumers, a dip in profits, and productivity gains.”

However, John Cridland, director-general of the CBI, warns that wages can only realistically grow at the same rate businesses do too.

“A £7.20 national living wage in 2016 and a £9 national living wage by 2020 are laudable objectives, but they are a gamble,” said Cridland.

“They depend on organic productivity improvements, not on political whim.

“I’ve talked to many CEOs who feel they may now have to make changes to their business models, which could result in fewer job and progression opportunities.”

Date published 17 Sep 2015 | Last updated 17 Sep 2015