REBA New Year Lectures: Employers are underestimating cost of National Living Wage

From 1 April 2016, employers must pay workers 25 or over £7.20 per hour, as part of amendments to the National Minimum Wage legislation. The Office of Budget Responsibility predicts the rate to increase to £9.35 per hour by 2020.

John Harding, partner at PricewaterhouseCoopers, said that many organisations have not considered the implications of the NLW, including on-costs such as auto-enrolment, tax and national insurance contributions.

“And what about the trickle-up effect?” he added. “If your organisation pays some people slightly above the national minimum wage, they will want to increase the differential between them and those paid the NMW.”

PwC found that employers surveyed regarding the effect of the NLW estimated that the average cumulative cost increase of paying the wage will be £1.6 million this year, rising to £11 million by 2020.

In addition, any company whose underpayment of the NLW exceeds more than £100 will be automatically named and shamed by HMRC, and penalties can total more than 200%.

“You don’t want to get caught out not paying the NMW or NLW, because the impact on your reputation will be significant,” Harding added.

“The employers who are the ‘adapters’ – focusing on getting a multi-skilled workforce and more capital investment – will be the ones who get through it best,” he added.

Harding said that remuneration governance will be one of the biggest issues that reward professionals will face this year, along with equal pay and linking pay to performance, as legislation focused on equal pay reporting and the apprenticeship levy comes into force.

In addition, ongoing requirements for auto-enrolment, holiday pay and the right to work in the UK will contribute to the “sheer pace of change we will feel as reward executives”.

Slides of REBA New Year Lectures 2016 presentations can be found here