Firms ask employees to ‘do more’ to counter escalating wage costs



‘Pay rises don’t come for free’ says analyst, as report finds employers have raised productivity and prices in response to increased national living wage

Employers in low-paying sectors, such as retail, cleaning and hospitality, have found alternative ways to manage the increased cost of the national living wage (NLW), a new report by the Resolution Foundation has found, allaying some of the earlier fears over job cuts.

More than a quarter (27 per cent) of the 800 companies surveyed have altered their employment structures and 41 per cent have asked their staff to ‘do more’ since the NLW rose to £7.20 per hour in April for employees over 25 years old. The government plans to increase it to £9 over the next four years.

Of the 27 per cent that have made staffing changes, the most common was to hire fewer new employees than would otherwise have been the case (62 per cent). Just over half (52 per cent) said they had offered fewer hours to staff, and 43 per cent reported using more casual or zero-hours contracts workers. Only 12 per cent of these firms had used more self-employed workers as a result.

To boost productivity, food manufacturing companies were more likely than others to invest in labour-enhancing or labour-replacing technology (42 per cent and 22 per cent respectively) while 37 per cent were likely to ask staff to work harder or more quickly, compared with 35 per cent in organisations in the hospitality sector.

Just 2 per cent of companies had made redundancies in response to the measure, despite the fact that 47 per cent said it had increased their wage bill. While a fifth (20 per cent) of respondents said they planned to take no action against NLW hikes.

Conor D’Arcy, policy analyst at the Resolution Foundation, said: “Pay rises don’t come for free and many predicted the NLW would cause other negative effects, such as job losses. Thankfully, that hasn’t come to pass as employers have responded by raising productivity, taking a profit hit and raising prices.”

He emphasised, however, that a “small minority” of organisations have struggled with the increased wage. “Some employers we interviewed expressed concerns about their ability to keep pace with the rising wage floor over the next few years,” he said.

The report also found that 17 per cent of those surveyed have reduced their reward packages. Of those employers, reducing pay rises for staff earning more than the living wage was the most common response (18 per cent). This was followed by removing or reducing Bank Holiday pay (9 per cent), overtime pay (7 per cent), Sunday pay (6 per cent), paid breaks (5 per cent) and pension contributions (3 per cent).

Additionally, over the next four years, 54 per cent of companies plan to raise their prices to make up for the wage increase to £9 per hour, which is in line with a recent survey from the Confederation of British Industry. This found that 41 per cent of employers absorbed the cost into their profit margins, while 26 per cent passed it on through increased prices to customers or clients.

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