How will the National Living Wage affect employees and businesses in the UK?

  • By Rob Fry

On April 1, 2016 the National Living Wage (NLW) becomes law.

Workers aged 25 or over and not in the first year of an apprenticeship must now be paid at least £7.20 an hour, 50p higher than the current National Minimum Wage for those aged 21 and over.

Here we take a look at which age groups, occupations, industries and businesses will be most affected by the introduction of the NLW.

More information about the methodology behind the calculations in this article can be found in the notes section.

The NLW is more likely to impact the 25 to 29 age group and the 60+ age group

Percentage of employees in each age group paid below the NLW before April 1, 2016, UK

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Around the same percentage of employees aged 25 to 29 and 60+ were paid below the NLW before April 1, 2016 (9.5% and 8.9% respectively)  – a higher percentage than for those in their 30s, 40s and 50s.

The NLW is more likely to impact employees in low skilled jobs

Unsurprisingly, before April 1, 2016, a much larger proportion of employees in elementary occupations, such as cleaners and refuse collectors, were paid below the NLW compared with those in professional occupations, such as dentists and solicitors (26.5% vs. 0.3%).

Percentage of employees in each occupation group paid below the NLW before April 1, 2016, UK

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How does your pay compare with someone paid the NLW?

Enter your information to see how your salary compares with a salary for someone working your hours but earning the NLW.

The NLW is likely to have a greater impact on small businesses

Percentage of employees paid below the NLW by business size, before April 1, 2016, UK

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Overall, 16.3% of employees in very small businesses, with just one to nine employees, were paid below the NLW before April 1, 2016. This compares with 5.2% of employees in very large businesses with 5,000+ employees. However, there are more low paid workers in large businesses in absolute terms.

The impact of the NLW on businesses will depend on a number of factors, including:

  1. The number of employees who were paid below the NLW before April 1, 2016.
  2. Whether or not wages made up a large part of total costs before April 1, 2016.

The NLW is likely to have the biggest impact on businesses in the accommodation and food service industry

Percentage of employees in each industry paid below the NLW before April 1, 2016, UK

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The industries with the highest proportions of employees paid below the NLW before April 1, 2016 were: accommodation and food services (33.2%), administrative and support services (16.9%) and wholesale and retail trade (13.4%). Therefore, businesses in these industries are more likely to feel the impact of the NLW than businesses in other industries.

The NLW is not likely to have such a big impact on businesses in the electricity, gas and steam industry, where just 0.3% of employees were paid below the NLW, or public administration and defence, where the proportion was 0.4%. It is also not likely to have much impact on the mining and quarrying industry, where the proportion was 0.5%.

The different proportions of employees earning below the NLW before April 1, 2016 is likely to be because of the different skill levels of the employees in these different industries. In the case of public administration and defence it may also be because the Government tended to pay above the NLW.

The NLW is likely to have a considerable impact on businesses in ‘low pay industries’

Taking a closer look at industries, analysis by the Low Pay Commission has identified several ‘low pay industries.’ More than 10% of employees in each of these industries were paid below the NLW before April 1, 2016 and so there is likely to be a considerable impact on businesses in these industries.

Percentage of employees in ‘low pay industries’ paid below the NLW before April 1, 2016, UK

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There is likely to be a particularly large impact on the cleaning, hospitality and hairdressing industries, where more than a quarter of employees were paid below the NLW before April 1, 2016.

Notes

  1. The National Living Wage (NLW) of £7.20 relates to hourly pay excluding overtime and shift premium pay. Employees in the first year of an apprenticeship are not entitled to the £7.20 hourly rate. See more about the NLW.
  2. All data in this article is from the Annual Survey of Hours and Earnings (ASHE), which is based on a 1% sample of employee jobs taken from HM Revenue and Customs’ Pay As You Earn (PAYE) records. Consequently, individuals with more than one job may appear in the sample more than once.  Employee jobs are defined as those held by employees and not the self-employed.  In this article ’employee jobs’ are referred to as ’employees.’ Figures are based on employees aged 25 and over whose pay for the survey period was not affected by absence.  Activities of households as employers and extraterritorial organisations are excluded from this analysis.
  3. The figures in this article come from analysis of the ASHE data on wages from April 2015. Between April 2015 and April 2016 (when the NLW became law), wages grew. Therefore it is not best practise to compare 2015 wages data with the £7.20 NLW that came into force in April 2016. Instead we have used a downrated NLW of £6.83. This follows analysis by the Low Pay Commission.
  4. All the data used in this article can be accessed on the ONS website.
  5. The pay comparison tool in this article calculates your annual salary from the information you put in. It then calculates what someone on the NLW would earn if they worked your hours, using the £7.20 NLW rate.

For more information, please contact: earnings@ons.gsi.gov.uk

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