The national living wage could set private sector employers back more than £1bn, including £804m in direct costs, independent government adviser the Regulatory Policy Committee has forecast.
The direct costs will comprised £672m in wages and £132m in associated costs, such as National Insurance contributions.
The committee said there are also likely be “spill-over” costs of up to £234m as employers boost pay rates for those already on around £7.20 per hour to maintain wage differentials.
And there will be a “transition” cost of £22.6m, to cover the time administrators and managers will have to spend on reading the new guidance, and updating payroll records.
The living wage of £7.20 per hour for over-25s will come into effect in April 2016. It is estimated that 1.7 million private sector employees will be affected.
Including costs to public sector employers, the total cost is expected to come be £1.1bn.