Forecasts of quickly rising pay in 2016 are 'too optimistic', according to the CIPD, the professional body for HR and people development, with many businesses worried about how they will pay for the National Living Wage.
The CIPD does expect solid employment growth in 2016, but the organisation's chief economist Mark Beaston believes there are "several reasons" that businesses may be nervous for the New Year.
"Some are worried how they will pay for the National Living Wage, especially those in retail, hospitality and social care," he said.
"Larger businesses will also have to pay the Apprenticeship Levy from April 2017, while many businesses with fewer than 30 employees will have to pay additional pension costs during 2016 as auto-enrolment is rolled out further. With inflation close to zero, some employers will try to manage these costs by restricting pay rises for their better-paid employees."
Mr Beaston also warned that economic growth will only be sustained in 2016 if productivity is raised by the already established workforce, as it does not expect the Apprenticeship Levy to achieve this on its own.
The CIPD expects the number of people in work to grow by another half a million in 2016, compared with forecasts made by the of Office for Budget Responsibility of 400,000. But wage growth will remain steady at around 2%, the CIPD expects, significantly below the Bank of England and OBR's expectations of 3.5%.
Mr Beaston said: "Last year, we predicted that employment would increase by up to half a million during 2015, which it did. This year I think we will see a repeat, with another half a million additional jobs. If the government provides the right support for those out of work, we may the opportunity to reduce the unemployment rate to below 5%, a rate we haven't seen since 2005."
On the issue of productivity, he added: “Although the Government sees the introduction of the Apprenticeship Levy as a means to encourage more employers to invest in developing their workforce and boost productivity, there are real question marks over whether the Levy will help improve the quality of apprenticeship programmes, which is as least as important as boosting overall numbers. Investment in leadership and line management capability is integral to getting the best out of people, and apprenticeships will have little impact on addressing this key skills deficit. While we now have seen two quarters of productivity growth, there’s clearly still work to be done to make this sustainable, which is the only way of delivering improved living standards in the longer term."