The Government is to introduce a ‘National Living Wage’ premium, on top of the National Minimum Wage for workers aged 25 and over from 1st April 2016. Notably, the National Living Wage will not apply to adult workers aged under 25, and this group will continue to be entitled only to the NMW, which is currently £6.70.
It is commendable that the Government wishes to create a more productive and high paid workforce. This policy will however, only deliver higher pay without significant job losses, if it is accompanied by a drive to increase productivity. In some sectors greater productivity is an easy solution, but this works less well in the service sector.
What you must do:
- If you have people employed on the NMW, review what you can do to limit the impact.
- If you have people who are currently paid between the minimum wage and the new living wage, then you also need to calculate the additional cost.
- Do not consider trying to avoid payment, as the financial and PR consequences can be substantial.
A particular problem will be salary sacrifice, (where an employee reduces or sacrifices, salary in exchange for benefits) as it has the potential to trip up the unwary. Employers currently offering salary sacrifice could inadvertently find themselves breaching the new legislation. You will need to tell employees that they will not be able to participate in a salary sacrifice arrangement if it would cause their hourly rate of pay to reduce below the National Minimum Wage, or the new National Living Wage.
If you are impacted by this change, then it is not too late to start planning for the rise, and considering how to respond to the challenges it throws up.
Some of the options you can take are:
- Improve productivity by capital investment
- Get out of unprofitable areas of your business
- Reduce premium payments for overtime or weekend/shift working
- Improve employee attendance by good control and good management
- Train your workforce so they can do more
- Improve the quality of your management to get more out of less, which is probably best done by training them
- Use innovative strategies to improve quality and improve employee engagement
We are not saying that these options are easy, and some will have employment law and employee relations implications, but doing nothing is not an option, so please speak take professional advice about taking an active approach.
Our Autumn training course, entitled Improving Workplace Productivity, will be discussing practical steps that Managers can take to get the best out of their employees, by using the three “R”s, namely Reward, Responsibility and Respect. This will include the suggestions above and more.
