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The living wage: how will it affect your business?

Last week chancellor George Osborne threw a curve ball to the retail world, announcing the introduction of a compulsory ‘living wage’ for all workers over the age of 25.

Eligible workers will see their hourly minimum rates grow to £7.20 in April 2016, and to £9 by 2020, compared to the current minimum wage level of £6.50. But what effect will this have on businesses?

Osborne said the living wage would have only a “fractional” effect on jobs and would cost businesses 1% of profits. This will be offset by a cut in corporation tax from 20% to 19% in 2017 and to 18% in 2020. However, concerns have been raised about the impact on small businesses, as the hike in costs may deter firms from expanding the team or result in job losses. The independents Drapers spoke to this week were split over the decision, with some saying the £9 wage goal was “too optimistic”, while others said they paid their staff “well above” the minimum wage and believed a gradual increase starting at £7.20 was achievable.

It seems multiples and supermarkets will bear the brunt of the change, as a large proportion of their workforces are paid the minimum wage or close to it. However Sainsbury’s and Tesco put on a brave face, saying they are “comfortable” with the wage increase.

Perhaps the most interesting aspect of the announcement was the age restriction and the fact the wage increase is only applicable to those over the age of 25 - excluding a third of retail employees in the UK. This figure is even higher in fashion retail, which employs a high proportion of young staff to man the shop floor. Will the living wage result in retailers seeking more young employees? 

As tempting as this might be in an increasingly competitive market retailers need to invest in skilled workers to deliver a seamless multichannel experience. The living wage may result in some difficult decisions - do you take on younger staff or do you take the hit to your bottom line?

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