National Living Wage may motivate employees but here's what it will do to productivity

Hayley Kirton
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It may make workers more motivated but will it make them more productive? (Source: Getty)

While the majority of businesses support the sentiment of National Living Wage (NLW), many are doubting it will boost productivity in the office, despite employees saying the pay rise will make them more motivated.

According to a study released today by Close Brothers, 50 per cent of SME owners and managers it surveyed have their doubts that Friday's pay raise will result in a measurable increase in productivity.

However, a previous survey by government found that 59 per cent of those who will see their pay go up feel it will make them more motivated at work.

It's a bit of a disappointing sentiment from businesses, considering research published last December by the Regulatory Policy Committee discovered that employers would need to shell out over £800m in direct costs alone to cover NLW, while the Close Brothers survey found that nearly one in five (18 per cent) employers are still unsure of how they're going to foot the bill.

Read more: The National Living Wage: A tax on hiring low-skilled workers

"The NLW will have a massive impact on SMEs," said David Thomson, chief executive at Close Brothers Invoice Finance. "In order to be prepared, businesses should consider a range of options so as to remain competitive and maintain a healthy cash flow."

From Friday, employees aged over 25 will become entitled to a minimum of £7.20 per hour, which represents a 50p pay hike when compared with National Minimum Wage.

A study published last November by the Resolution Foundation and the Chartered Institute of Personnel and Development discovered that more than half (54 per cent) of employers are predicting the NLW will have some sort of effect on their wage bill, while one in five (18 per cent) fret that Friday's wage boost will affect them to a large extent.

Read more: UK services sector knocked by Living Wage fears

When the think tank and the professional body for HR asked employers just how they intended to cover these additional costs, almost a third (30 per cent) said they would do so by boosting productivity and efficiency.

Friday's pay packet plumper is likely to hit certain sectors more than others. A study released last month by the British Retail Consortium found that recently introduced government policies, including NLW, were forecast to cost retailers almost £14bn over the course of the next four years, putting around a million jobs at risk in the process.

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