In this issue we’re concentrating on the new National Living Wage, which was announced by the Chancellor in July’s Budget and is due to come into force from April next year. With roughly 288,000 people on the National Minimum Wage (NMW) in the retail sector, it is likely to be a hot topic for retailers both large and small.
If HR/employment isn’t your area of interest, don’t worry, we’ll be covering a broad range of topics across all retail areas in future issues. If you have any questions about this, or would like to suggest a future topic for us to cover, please get in touch. Otherwise, enjoy!
THE NATIONAL LIVING WAGE
For workers aged 25 and over who currently earn the NMW, this means an increase from £6.50 an hour (£6.70 from October 2015) to £7.20 an hour. In the short-term, this involves a pay rise for six million workers and the Government has set a target of increasing the National Living Wage to £9 an hour by 2020.
Behind the hospitality sector, retail is the second largest low-paying sector in the UK. According to the Low Pay Commission, one in five jobs paid at the current NMW can be found in this sector. So retailers are going to be affected by the National Living Wage more than most.
Our employment specialists, Sarah Johnson and Bill Smith, put forward their views on whether paying the National Living Wage is a positive step for retailers.
Recently Lidl announced that it is going to pay staff £8.20 an hour (£9.35 in London), leading to a wave of positive publicity for the business. Other retailers are under increasing pressure to pay more.
The National Living Wage is not the same as the Living Wage set by the Living Wage Foundation (LWF). The LWF Living Wage is currently £7.85 per hour (£9.15 in London). The National Living Wage is relatively modest at £7.20 an hour.
The Living Wage calculated by the LWF is based on the cost of living, whilst the National Living Wage will be based on median earnings. At present, paying the LWF Living Wage is voluntary. The National Living Wage will be a compulsory minimum wage premium for all staff aged 25 and over.
Paying the National Living Wage is certainly a step in the right direction, although some believe that the Government should go further.
Why do we need a National Living Wage when we already have the NMW? With the current NMW rate for workers aged 21 plus at £6.50, NMW rates can create working poverty, particularly in London.
We live in a society where the gap between the “haves” and “have nots” is growing ever wider. Struggling to survive on the NMW is likely to be destructive of home and family life. Staff should be paid enough to afford a minimum acceptable standard of living.
Most retailers are not charities and will be concerned about the commercial impact of increasing wages. The effect of the National Living Wage has not yet been tested, but paying the LWF Living Wage has had commercial benefits. It can help win business. Many customers choose an ethical retailer/brand and paying the LWF Living Wage has become mandatory as part of some procurement processes.
Staff turnover in the retail sector can be high. Paying the LWF Living Wage can help to attract and retain better quality, more motivated low-paid staff, reducing recruitment and training costs. It can also reinforce a retailer’s reputation as a good employer, making it easier to recruit high quality senior staff.
Studies have shown that paying the LWF Living Wage can improve performance, reduce absenteeism and the number of disciplinary hearings. Better-paid employees often have improved morale and well-being. They are likely to deliver better service to customers and improved productivity. Hopefully, the National Living Wage will have a similar effect.
Clearly, there are some downsides to the National Living Wage. Paying higher salaries will eat into profits. Customers may say they are pro Living Wage, but could vote with their feet if prices increase. Forcing suppliers to cut their prices may create negative publicity, such as the recent milk protests. Some businesses are likely to fund the National Living Wage through job cuts.
Retailers should do their costings carefully. Paying the National Living Wage is likely to impact employer National Insurance and pension contributions. Some employers have funded the LWF Living Wage by cutting bonuses. Higher-paid staff will also want established pay differentials to be respected.
Despite all the potential challenges, paying the National Living Wage is a positive step and should help tackle working poverty in this country.
On the basis of the LWF cost of living figures, it seems correct that raising wages for the lowest paid in the country should reduce poverty and retailers have their part to play, given that they employ or engage an estimated 288,000 people on the NMW. However, once you take the emotion out of this topic, the National Living Wage may have a harmful impact on those it is designed to help most – the lowest paid in society.
It is quite right that Lidl should be applauded for paying its staff above both the Government’s planned National Living Wage and the LWF’s suggested rates of pay. Yet, I have no doubt that the additional £9 million per year this will reportedly cost Lidl can be absorbed by a business with annual sales in the region of £4 billion.
For less buoyant businesses, the introduction of the National Living Wage won’t be quite so easy and its effect is likely to be twofold:
- For those thinking about recruiting, the additional cost of staff will inevitably make them think twice and may stem the creation of additional jobs. The Guardian has reported that some retailers already fear the worst and have imposed a recruitment freeze and a ban on overtime.
- For businesses unable to absorb the increase in wages (and the associated increases in NICs and pension contributions), job losses are unfortunately foreseeable.
The Office for Budget Responsibility has estimated that 60,000 jobs will be lost as a result of the implementation of the Government’s National Living Wage plans. The majority of these jobs are likely to be lost in those geographical areas where unemployment is already at its highest. Therefore, whilst the apparent aim of the National Living Wage is to reduce economic inequality, the danger is that the initiative could have the reverse effect.
The financial impact of recruitment/overtime freezes and redundancy rounds on those affected are obvious. But what about those lucky enough still to have a job? They’ll be paid more, but bosses will expect more bang for their buck which will lead to increased demands on their time, increased levels of stress and, consequently, increased levels of absence in the workplace.
Not only will the National Living Wage put jobs at risk, but increased wage costs will reduce businesses’ ability to expand and develop. The EY Item Club described the Government’s plans as a “risky strategy”. It went on to say that “ultimately, the success or otherwise of the [National Living Wage] depends upon how the business community responds." We hope the response will be positive but there are no guarantees.
The final point I would like to make is about the potential impact on the consumer. Both Costa Coffee and Premier Inn have said they will look at ‘selective’ price rises to offset the cost of the National Living Wage. However, by increasing prices, retailers may make themselves uncompetitive in a very competitive market. This is likely to have a disproportionate impact on smaller retailers who are already struggling to compete and those that sell overseas. If the increased cost of wages can’t be passed on to the customer, we return to the prospect of job losses and increased scrutiny on the remaining workforce.
Of course, some might say that, if millions are getting paid more, does it really matter if a few are put out of work. However, if a reduction in poverty is the end game, implementing the National Living Wage is surely the wrong game plan.