National Living Wage Could Cost North West Businesses An Extra £53.6 million

Year Published: 2016

How much could the new National Living Wage cost North West businesses?

North West law firm SAS Daniels is warning the region’s businesses that they will need to fund a monthly wage bill that’s likely to rise by up to £53.6milion* come 1 April as the new National Living Wage kicks in.

With 670,000*1 workers in the North West earning less than the new National Living Wage set at £7.20, bosses across the region will need to put plans in place to cover the additional wage burden.

The rise from £6.70 to £7.20 was set by the Chancellor George Osborne, but doesn’t come close to providing a real ‘living wage’ according to some, who believe that a rise to £7.85 is more realistic to have a decent standard of living. This could potentially see the monthly wage bill for the North West increase by £123million.

The Employment Law & HR team at SAS Daniels comments, “The change is expected to boost the wages of six million people, approximately 20% of all employees across the UK’s workforce. In the North West it will affect two thirds of a million jobs and their employers need to be ready to deal with the impending bill.”

Is your business prepared?

SAS Daniels is warning employers that they need to prepare as soon as possible for the new wage rate, by understanding the eligibility of staff; updating the company payroll and communicating the changes to employees as soon as possible.

With the new living wage set to rise to £9 by 2020, some businesses are thinking further ahead than just the April 2016 deadline. Some UK supermarkets have already announced they will top the national living wage, with Aldi being the first to announce that its staff will earn at least £8.40 an hour from February 2016.

“This option will of course not be possible for some employers whose margins are already tight and who cannot set their own rates and control their income, for example in the care sector, and unfortunately therefore redundancies are going to be inevitable in some cases,” SAS Daniels add.

How can businesses mitigate the increased costs?

According to SAS Daniels, businesses could consider a variety of methods to mitigate the effects of this increased cost. She advises:

  1. Invest in existing staff and identify where lower-paid roles can be consolidated, giving staff the opportunity to take on extended duties and to up-skill, in return for a higher rate of pay. This strategy may also lead to increased retention and productivity levels.
  2. Review internal processes to determine whether or not efficiency improvements can be made for example by investing in technology.
  3. Review staff benefit packages as a whole and determine whether savings can be made in other areas, for example reducing overtime rates.
  4. Consider raising prices to help cover the costs if the market can support it.

“Many employers are now faced with a costs conundrum and are wondering how they are going to offset the higher wage bill and make ends meet,” adds SAS Daniels.

* 50p increase in living wage per hour multiplied by 160 hour working month multiplied by 670,000 people in the North West earning less than the living wage equals £53,600,000 increase in salaries in one month.

*1 Source: Office of National Statistics.


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