The introduction of the National Living Wage (NLW) to replace the National Minimum Wage (NMW) from April 2016 is set to cost businesses around £1bn, according to the Regulatory Policy Committee (RPC), the government’s appointed independent verification body, which is charged with scrutinising the underlying evidence base for regulatory proposals
The RPC’s published opinion gives the NLW plans a ‘fit for purpose’ green rating, and says the main impact of the proposal on business will be the cost of raising the pay of affected employees.
From April 2016, a NLW will be introduced into the existing national minimum wage framework. Initially this will be set at £7.20 per hour and will apply to those aged over 25.
The RPC says it is estimated that approximately 1.7m employees in the private sector will be affected, and that this will cost £804.4m, consisting of £672m in wages and £132.4m in associated non-wage labour costs, such as national insurance contributions (NICs). A further £234.3m of ‘spillover’ costs from maintaining pay differentials within organisations will take it over £1bn.
Seamus Nevin, director of the Institute of Directors, said: ‘It is imperative that the government now comes good on its promise of less red tape, fewer regulatory hurdles, and a lower rate of corporation tax to help employers absorb these additional costs and raise pay.’
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