More than half of all employers expect to be hit by the introduction of the National Living Wage next year, with some planning to improve productivity, take lower profits or make redundancies as a result.
The Chartered Institute of Personnel and Development (CIPD) and the Resolution Foundation surveyed more than 1,000 employers across all sectors and found that 54% of respondents believe the changes will have a material effect on their wage bill.
The new rate will have the greatest impact in the retail and hospitality sectors, the study found.
From April 2016, the national living wage will push up the minimum hourly rate for workers aged 25 and older from £6.70 to £7.20.
In the survey responses, nearly one in 10 said they will hold back pay rises for the rest of the workforce, while 16% signalled that they would look to reduce overtime and bonuses, 9% said they will cut hours and 8% will hire more workers under 25 years. Three in 10 are planning to recoup the extra cost by raising productivity.
Others believe the business as a whole as well as staffing will be negatively affected, with 22% saying they will take lower profits or absorb costs, while 15% said they would raise prices.
At the time of the survey in September, 26% said it was too soon to say how they would manage the cost.
Conor D’Arcy, policy analyst at the Resolution Foundation, said: “The new National Living Wage will have a huge impact on the labour market when it comes into effect next April, with millions of workers set to get a pay rise and half of all employers saying they’ll be affected.
“It’s encouraging that so many firms say that they’ll respond to the new higher wage floor by improving efficiency. But actually delivering this will prove challenging in many sectors, and it’s important that firms are given the necessary support to boost productivity.”