Retailers to take biggest hit as businesses brace for impact of National Living Wage – PwC

The survey carried out by global accountancy firm PwC also found that businesses project up to £11m more will be added to their wage bills by 2020.

PwC surveyed businesses to understand how they are preparing for the introduction of the new NLW and found those organisations which currently have a large number of employees earning below £7.20 an hour, and will therefore be affected from the first year, will typically see their wage bill rise by £2.3m in 2016 and £15m by 2020.

Gwyneth Scholefield, human resource services director at PwC in Scotland, said: “Millions of workers will get a boost from the National Living Wage. Businesses have been given time to prepare for these changes and should be using this as an opportunity to introduce wider workforce interventions and technology to improve productivity, rather than defaulting to passing the costs on to consumers.

Those employers surveyed say that nearly a quarter of their workforce (23%) are currently paid less than £7.20 an hour and nearly four in ten (39%) are currently paid less than £9 an hour – the target wage by 2020.

The expected wage bill increases for the different sectors based on the survey respondents was:

Sector

Predicted wage bill increase in 2016 (each)

Predicted wage bill increase by 2020 (each)

Retail

£3.8m

£25.6m

Healthcare

£2.5m

£14.3m

Hospitality and leisure

£2.2m

£13.2m

Transport and logistics

£0.6m

£9m

Addressing the issue of retailers Ms Scholefield, said: “Those retailers that see the NLW as simply a change to statutory minimum pay are ignoring the competitive changes that this is already causing in the sector. Since the summer Budget, a number of large retailers have become accredited by the Living Wage Foundation.

“The impact looks set to be broader than reward or people strategy, it will reset the parameters of the entire business model. Our survey highlighted that a fifth of businesses will review how they manage performance to drive up productivity. This is a massive opportunity for retailers.

“If ever there was a time to revisit strategy and operating model, it’s now. Innovators in the sector will be looking at areas such as technology, procurement, productivity and strategic workforce planning and creating the next generation of retail. How organisations react will make all of the difference. Those that adapt will come out ahead.”

PwC suggests that businesses should start planning on how they will implement the NLW now, even if they won’t be immediately impacted in 2016. This is a chance for organisations to consider where they want to position themselves in the market and review their pay and benefit structures accordingly. It is important that any changes are fit not only for the NLW but broader pay changes. These changes include increasing pension auto enrolment contributions, holiday pay changes, and gender pay gap reporting.

The new apprenticeship levy will also be relevant for those Scottish businesses with operations in England or who are looking to expand across the border.

Over half of employers (57 per cent) say they are likely to spend more on their wage bill to maintain pay differentials between their lowest pay bands. In the most impacted sectors, we anticipate the cumulative impact of these costs will drive wider business innovation.

Around a third of respondents (32 per cent) say they are planning to pass on the increased costs to customers and over a quarter (26 per cent) say they plan to reduce their headcount due to the increased wage bills. Half of respondents say they plan to change their pay and grading structures in response to the NLW.

John Harding, employment tax partner at PwC, added: “The National Living Wage announcement is already changing the competitive landscape in the most impacted sectors. How organisations react to this change will set them apart for the future. Given the timetable of proposed increases, even those employers currently paying above £7.20 an hour need to be wary of complacency. Employers who are able to quickly adapt to these changes and embrace them are most likely to thrive as they will be best positioned to attract and retain talent.

“While many employers should be able to afford the increase to their wage bill, the disproportionate impact on sectors employing a large number of lower paid workers such as retail, transport and logistics, healthcare and hospitality and leisure can’t be ignored. Organisations must have a plan to deal with these costs, that isn’t simply passing them on to consumers or reducing headcount.”