Dr Angela Wright, Senior Lecturer in Human Resources Management at Westminster Business School, comments on the impact of the National Living Wage on businesses and employees.

“The National Living Wage is not a ‘living wage’. It is set above the current National Minimum Wage but considerably below the ‘living wage’ paid voluntarily by several hundred employers. The current ‘living wage’ in London (worked out by the Major for London’s office) is £9.40 an hour, and the figure outside London is £8.25 (set by the Living Wage Foundation), also substantially higher than the National Living Wage of £7.20, which  is only payable to people over the age of 25. 

“The low-paid sectors of retailing, hospitality, catering and caring, which employ large numbers of people, are the sectors which are most affected by the National Living Wage and women will be more affected by the rise in lowest rates than men. Interestingly, the gender pay gap reduced after the National Minimum Wage was first introduced in 1997.

“The National Living Wage will further be increased to £9 in 2020 and businesses will need to prepare for this additional rise. Many may be able to accommodate this rate without it affecting the reward structures elsewhere in their company. However, there is always a concern that a rise in the lowest pay rate could trigger pay claims from others in the organisation – particularly those paid just above the new minimum rate. Companies may find it beneficial to move to pay structures which use pay ranges, rather than single point or spot pay rates (as used currently by some large retailing firms) so that they can more effectively manage the introduction and development of the National Living Wage to help mitigate the costs.

“Since the introduction of the National Living Wage in 1997, the majority of people who were put on the minimum rate haven’t stayed on this low wage for long, moving to higher rates within the same company or elsewhere. However, in the past few years fewer people have been able to escape the absolute lowest level of pay, and these were again mostly women – particularly older women and younger single mothers. Hence, there may be a divide between the cost experience of employers which employ large numbers of older women and young single mothers, who are less mobile in terms of moving jobs, compared with company workforces with more low paid young men and women without children, who will tend to be more mobile.”