National living wage rise puts pressure on pay bills

The April increase to the national living wage contributed an additional 1% to affected employers’ overall pay bill, HR consultancy Paydata has found.

According to its spring UK reward management survey, which received responses from 198 employers who collectively employ more than 400,000 people, the 9.8% increase to the NLW that was applied in April put pressure on employers at a time when many were continuing to experience recruitment difficulties.

The median pay award across organisations that needed to apply the NLW increase – which rose from £10.42 to £11.44 an hour – was 5% across their workforce. The median award among those unaffected by the NLW rise was 4%.

Tim Kellett, Paydata managing director, said: “The increase in the national living wage that came into effect in April 2024 is impacting employers who have had to budget for an additional one per cent as a direct result of the increase, particularly for healthcare, housing associations, facilities management and residential care sectors where they have a high population of roles at this level of pay. Many are carrying out compression analysis to help maintain competitive pay levels.

“The majority of respondents, 34%, are awarding up to 5% pay increases in 2024, compared to only 3% of employers offering this level in 2021.”

The survey, which ran from the end of March to the end of May 2024, also found that 61% experienced recruitment difficulties in the past six months, while more than half expect these challenges to continue.

To entice candidates, 50% have had to offer new recruits different salaries to current staff. One in five have had to offer salaries of up to 20% more.

Three in 10 are adjusting their reward strategies to place greater emphasis on enhancing performance and productivity, as two-thirds have a hybrid working policy in place.

Kellett said: “Building a high-performance culture requires buy-in across the organisation. With a greater focus on affordability, many are introducing a more robust performance management framework and clearer objectives in order to maximise productivity.

“Employers are paying a premium to recruit, or awarding out-of-cycle pay awards to retain top talent, particularly amongst those struggling to find the right people and skills. Employee feedback through opinion surveys is crucial – seeking continuous feedback can help organisations adapt quickly to meet employee needs and build agile cultures that people want to stay and join.”

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