From tomorrow restaurants, hotels and pubs will have to pay all staff over the age of 25 £7.20 per hour, a 50p rise on the current minimum rate.
PwC estimates that this will cost the sector £13.2m over the next four years, and the Office for Budget Responsibility (OBR) has warned that 60,000 jobs will be lost across multiple industries as a direct result.
So how does this affect hospitality?
Boris Johnson has previously urged all hospitality firms to pay higher wages, arguing that it could be a solution to the industry’s issue of high staff turnover.
However, businesses have warned that it could lead to spiralling food costs and redundancies as firms struggle to balance the books.
Mitchells & Butlers – which owns Harvester and All Bar One – said that diners would ultimately ‘pay the price’ for the NLW as menus got more expensive.
Whitbread has already announced plans to raise prices across its Costa and Premier Inn brands as a result.
This week a poll by the Publican’s Morning Advertiser revealed that 56 per cent of licensees would be cutting staff jobs or hours following the rise, with the boss of JD Wetherspoon predicting that the NLW would lead to pub closures in less affluent areas.
And there were fresh warnings from the hospitality sector in Northern Ireland today that businesses may be forced to lay people off in order to cope with the change.
Colin Neill, chief executive of Hospitality Ulster, said: “We want to see our staff earn more, but by forcing a new National Living Wage upon the sector at this time will have an unintended consequence as employers will have to potentially cut staff and try to allocate an already stretched income even further.
“We can’t replace our people with robots, they are the lifeblood of the sector and the backbone of our tourism offer”.
‘The wrong message’
A number of larger chains including Five Guys and Paul have already introduced the change early, with Starbucks and Costa extending the rise to all workers regardless of age.
But a survey of hospitality operators by BigHospitality’s sister site MCA found that almost three quarters foresaw higher wages as negatively impacting their business.
This is despite warnings that rejecting the NLW risks damaging hospitality’s image at a time when firms are struggling to change its public perception.
Peter Ducker, the chief executive of the Institute of Hospitality, said: “When the Living Wage was announced our industry was the first to say it would mean staff cuts.
“It sends out completely the wrong message that the industry is only ever going to pay low wages and that there’s no career path to get to a high level.”
George Osborne hopes to increase the NLW to £9 per hour by 2020.
Are you ready?
The Government has expressed concerns that many employers are ‘unprepared’ for the introduction of the new higher rate, and urged firms to update their payroll and discuss the changes with staff.
It has warned that businesses failing to pay the NLW risk legal action and could face fines of up to £20,000.
For those unsure about the NLW the Government has published guidance for businesses and staff which can be viewed here.