Fifth of employers want to up productivity in response to National Living Wage

Around a fifth of employers will respond to rising wage bills by taking action to improve productivity, research by the Recruitment and Employment Confederation has revealed.

The REC found that, as a reaction to the new compulsory National Living Wage, which comes in on 1 April at a rate of £7.20 for those aged 25 and over, 19% will invest in training or take measures to increase staff productivity.

Its data also showed that one in 10 are unsure about the action they will take, while 39% plan to take no action.

A number of employers will respond to the higher costs with cost cutting measures: 14% will take on fewer staff than planned, 8% will reduce staff overtime and bonuses, and 2% will make redundancies.

A further 8% will pass the rising cost on to customers, by increasing the cost of their goods or services, the REC found.  

Responding to the findings, REC head of policy Kate Shoesmith said: “Many employers are adopting a ‘wait and see’ approach to the National Living Wage, with 40 per cent saying they will take no action and a further 10 per cent saying they don’t know what their response will be.

“A significant proportion of businesses will not be affected by the first NLW, but the government has pledged to raise the rate to at least £9 by 2020 – this is likely to impact many firms’ longer-term hiring strategies. 

“It’s encouraging that a fifth of employers are planning to increase productivity, but this is easier said than done. Low-pay sectors such as health and social care are already finding it difficult to attract and retain staff – and there are question marks about how care providers are supposed to meet cost increases.

“For recruiters, it’s important to understand how your candidates and clients might react to the NLW so that you can provide expert advice.”   

The REC has launched a guide to help its members prepare for conversations with clients about the potential impact, which can be downloaded here.