In the Budget last summer, it was announced that a “Living Wage” will replace the current levels of National Minimum Wage (NMW).
The Government is to introduce a ‘National Living Wage’ premium, on top of the NMW for workers aged 25 and over from 1st April 2016. This means that the minimum wage for workers aged 25 and over will have gone up twice in the last 12 months. On 1st October 2015, the standard adult rate of the NMW increased to £6.70 ﴾from £6.50﴿ and then in April 2016 it will go up again, for those aged 25+, to £7.20. 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 National Minimum Wage, which is currently £6.70, and will be reviewed again in October 2016.
In future, the Low Pay Commission will make annual recommendations as to the level at which the premium should be set (and the level of the NMW). The Government has made it clear that it intends the living wage, i.e. the NMW combined with the living wage premium, to reach 60% of median earnings by 2020, which should put it at in excess of £9 per hour.
It is admirable that the Government wishes to create a more productive and high paid workforce. They have said they are “determined to move to a higher wage economy”. However, this policy will only deliver higher pay without significant job losses, if it is accompanied by a drive to increase productivity. In low pay sectors, such as retail, hospitality and the care sector, it is all too easy to promote greater productivity as a solution, but this works less well in the service sector. It has been met with mixed reactions from employers, some believing it to be unrealistic and unaffordable, while others maintain that it is fair and attainable.
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 impact to your organisation.
- If you employ people on just above the living wage, then consider whether you will remain competitive in your reward strategy.
- Do not consider trying to avoid payment, as the financial and PR consequences can be substantial.*
- If applicable, communicate with your staff the impact on their pay, and consult over ways to improve productivity.
- *Failure to pay the minimum wage may result in both civil liabilities to make payment to workers, and/or criminal penalties. Furthermore, BIS has recently announced a package of measures intended to improve compliance with National Minimum Wage legislation. The current penalty is 100% of the worker’s underpayment. From April 2016, this will increase to 200%. The maximum penalty is £20,000. Furthermore, BIS’s proposed measures include increasing the budget for the enforcement of the minimum wage, and establishing a new HMRC team dedicated to pursuing the most serious cases of employers deliberating not paying, or avoiding paying minimum wage. HMRC can also ‘name and shame’ offenders.
If you are impacted by this change, then it is not too late to start planning for the rise now, 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
- Train your workforce so they can do more
- Reduce your workforce size by recruitment freeze or redundancy
- Reduce premium payments for overtime or weekend/shift working
- Improve employee attendance by good control and good management
- Improve the quality of your management to get more out of less, which is probably best done by training them
- Review working hours, so that you are paying people only for the work that is really needed
- 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 to your Consultant 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.
Our Consultants would be pleased to advise you on any element of the issues arising from this newsletter.