New living wage will cost employers £1bn says IoD report

The government has been urged to help firms by cutting red tape after it was revealed that the cost to employers of the new national living wage will be over £1 billion.

A government report said the estimated cost of £1.1 billion is made up of almost £700 million in direct cost to employers from raising wages to meet the new statutory minimum of £7.20 an hour for over 25-year-olds from next April, and £137.5 million in associated non-wage labour costs such as pension and National Insurance Contributions.

There will also be a “ripple effect” driven by businesses maintaining pay differentials, estimated to cost £59.5 million.

There will also be £221 million indirect labour costs and £22.6 million transition costs.

The Institute of Directors said the cost of implementing the new hourly rate came on top of other additional costs to businesses.

Seamus Nevin, head of employment and skills policy at the IoD, said: “IoD members supported the introduction of the Chancellor’s living wage as part of a deal he made with business - lower taxes for higher wages.”

The IoD said nine out of 10 of its members already pay the higher voluntary living wage rate to all their staff members.