Major employers in sectors such as retail could see wage bills rise by up to £3.8m per company next year due to the introduction of the National Living Wage (NLW), according to analysis by PwC, which warns businesses need to prepare for the impact of higher payroll payments
The survey of 135 businesses with an average 11,000 employees found that they expect to pay an extra £1.6m on average each in wages in 2016, and up to £11m more by 2020.
Retailers expect the biggest wage bill increases next year, which PwC calculate could hit £3.8m each in 2016, rising to a total of £25.6m by 2020.
According to the survey, 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.
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.
Over half of employers (57%) say they are likely to spend more on their wage bill to maintain pay differentials between their lowest pay bands. Around a third (32%) say they are planning to pass on the increased costs to customers and over a quarter (26%) say they plan to reduce their headcount due to the increased wage bills.
Half of respondents say they are planning to change their pay and grading structures in response to the NLW.
John Harding, employment tax partner at PwC, said: ‘Given the timetable of proposed increases, even those employers currently paying above £7.20 an hour need to be wary of complacency.
‘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 cannot be ignored.
'Organisations must have a plan to deal with these costs, that isn’t simply passing them on to consumers or reducing headcount.’
Figures published by ONS earlier this week indicated that in 2014, around six million employees were paid less than the living wage in the UK. The living wage, which is voluntary, is currently set at lower rates than the mandatory NLW to be introduced in April 2016.
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