20% to maintain pay differentials impacted by national living wage


A fifth (20%) of respondents will maintain pay differentials between employees affected by the national living wage and their managers, according to research by the Chartered Institute of Personnel and Development (CIPD) and the Resolution Foundation.

The Weighing up the wage floor: employer responses to the national living wage report, which surveyed 1,037 employers, also found that almost half (46%) of respondents do not know how they will approach the national living wage’s impact on pay differentials within their organisation.

The research also found:

  • More than a quarter (26%) of respondents will reduce pay differentials between those impacted by the national living wage and their managers, and 5% will increase them.
  • Just under a third (30%) of respondents plan to offset the cost of the national living wage by increasing productivity.
  • 16% of respondents intend to reduce overtime and bonuses to mitigate national living wage costs, 9% will reduce the basic rate of pay growth for the rest of the workforce and 8% will hire more workers under the age of 25.
  • Just 15% of respondents plan to reduce the size of its workforce through redundancies or recruiting fewer employees, and less than one in ten (9%) will cut the number of hours worked by staff.
  • Almost a third (32%) of private sector respondents believe that cuts to corporation tax and national insurance will go at least some way to offsetting the higher wage costs.
  • 54% of respondents expect the national living wage to affect their wage bill, and 5% do not know whether the new rate will have an impact.
  • 33% of respondents in the wholesale, retail and motor industry expect the national living wage to increase their wage bill to a large extent, compared to 25% in the healthcare sector and 17% in the voluntary sector.

Conor D’Arcy, policy analyst at the Resolution Foundation, said: “The national living wage will make a huge difference to millions of low-paid staff. The higher wage floor should spur productivity gains, and encouragingly employers seem keen to respond in this way. How these efficiencies are found remains unclear however, particularly among [small and medium-sized enterprises] SMEs.

Sign up to our newsletters

Receive news and guidance on a range of HR issues direct to your inbox

This field is for validation purposes and should be left unchanged.

“The introduction of the national living wage will be a big bang for low-paid staff but it will be more of a slow burner for businesses, with many waiting to see how sectors respond over the coming years.”

Mark Beatson, chief economist at the CIPD, added: “With just over a month to go until the introduction of the national living wage, most employers likely to be affected will be concentrating on the practical steps necessary to ensure they implement the new wage on time. But our reports suggest there is a lot more uncertainty among employers on how they are going to make sure this step up in pay isn’t one that threatens jobs or the business.”