In the July 2015 Budget the Chancellor introduced a compulsory living wage, it will be paid to workers aged 25 and above and from April 2016 it will be set at £7.20 an hour with a target of £9 an hour by 2020. Part-time and full-time workers will be eligible for the living wage rate.
The living wage is another major challenge facing employers in the coming years; the main minimum wage rate is £6.50 per hour so the living wage represents an increase of 38.5%. If staff currently in receipt of the minimum wage obtain a rise their supervisors and managers will also expect corresponding increases. In addition we have the impact of pension auto enrolment where an employer has to contribute 1%, increasing to 3%, of banded earning by September 2018. Thus in total employers are potentially looking at increases in staff wages of up to 43% by 2020.
There have been complaints from a wide range of business sectors including restaurants, hoteliers, retailers, cleaning firms, social care, child care providers and public houses who cannot afford to pay this rate without raising prices. In addition there will be a financial squeeze when interest rates rise, and paying higher prices will be difficult given customers shrinking disposable income. Some of the businesses that have been affected have publicised what they think the effect will be.
- James Hick from Manpower Group said “The National Living Wage is sending shockwaves through the UK labour market.” He said that some companies were already scaling back on their recruitment plans ahead of the introduction of the NLW in seven months.
- “Support services firm Interserve has announced that the extra annual wage bill for its 15,000 cleaners could amount to as much as £15m, or 12% of its annual profits,”.
- Social care company Mears Group estimates the cost of meeting the wage hikes for its 4,000 care workers will be £5m, or 10% of its annual profits.
- Costa Coffee-owner Whitbread also said that customers can expect to pay more for their coffee if the living wage is enforced.
- J D Weatherspoon, founder and chairman, Tim Martin said “It is certain that high streets in less affluent areas, which already suffer from serious problems of empty shops and dereliction, will suffer further if pubs and other businesses close,”.
The living wage starts in April 2016 at £7.20 an hour. If changes are not made in employment practices employers are looking at significant increases in the sale price of their goods and services by 2020. Business owners will have to consider how the minimum wage will affect them and plan ahead to cope how they are going to manage this increase: –
- Can the increase in wage costs be passed on to customers?
- Is there potential to reduce staff numbers by increasing automation?
- Can productivity be increased? Either way staff working hours will have to be constantly reviewed.
- Students and people under 25 will be a lot more cost effective to employ as only the minimum wage legislation will apply
- Those employers who employ antiquated employment practices will have to bring them up to date with current practices.
- Discussion should be held with employers, suppliers and customers to make them aware of the impact these changes will have on the business.
The current National Minimum Wage (NMW) will run alongside the living wage, there are different levels of NMW, depending on age and whether you are an apprentice. The current main rates are:
- aged 21 and over – £6.50 (£6.70)
- 18-20 rate £5.13 (£5.30)
The figures in brackets are the rates applicable from 1 October 2015. Workers must be of school leaving age (last Friday in June of the school year they turn 16) or over to get the minimum wage.