How organisations are mitigating the cost of the National Living Wage

As we rapidly approach the anniversary of the launch of the National Living Wage, and with the Chancellor’s autumn statement confirming a rise to £7.50 an hour (from £7.20) from April 2017, we take a look at how organisations are tackling the additional cost of its introduction.

Particularly for sectors where wages are traditionally lower, such as retail, hospitality and care, organisations face the inevitable challenge of mitigating the cost of introducing the National Living Wage. 

As part of the autumn 2016 edition of our UK Reward Management Survey, we asked employers how they are coping with the introduction of the National Living Wage and also how they think they will react to future increases. 

National Living Wage from our latest UK Reward Management SurveyOf those organisations that indicated they were already taking steps, or were expecting to do so, in order to mitigate the cost associated with the National Living Wage, increasing productivity and restructuring base pay by consolidating allowances are strategies already being used by around a third of respondents (33 per cent and 30 per cent respectively). As employers look to the future this trend looks set to continue as the favoured options. 

So far, relatively few organisations have passed on the increased cost to customers (12 per cent). That appears to be consistent with the continuing low level of inflation. However, the signs are that this is only a short-term approach, and consumers are going to feel the effect in the medium to longer-term as the National Living Wage rises and more employers look to increase prices to customers in order to mitigate the additional cost.

With the National Living Wage set to reach around £9.00 an hour by 2020, inevitably the higher it gets, the more employers will be impacted by it. We will continue to monitor the issue in future editions of the UK Reward Management Survey.

By Naomi Pearson