Are you ready ….?
…. for the National Living Wage?
Following the introduction of the statutory National Living Wage on 1st April 2016, the hourly rate for those aged 25 and over will rise to £7.20, an 11 per cent hike on the current National Minimum Wage rate. The Government has also indicated that there will be a series of incremental increases that will bring the National Living Wage hourly rate up to a minimum of £9.00 per hour by 2020.
We warned clients last October to get ready for its introduction, but it seems that many UK employers have done little, or nothing, to prepare for its introduction, with Government studies revealing that few companies have communicated the upcoming changes to their employees, and that many have still not fully planned for the impact of the increased rate. Hopefully you are better prepared than that, but the following is some food for thought!
What is the impact beyond your lowest paid employees?
How will your supervisors or managers be affected – will there be any/enough of a differential? Can you afford to pay them more? Do you want to pay them more?
A significant change to the rate is bound to have an effect on other wage differentials in the organisation. This will mean looking carefully at rates just above the lowest level, as well as the distribution of pay across the organisation as a whole – by 2020 anyone over 25 working a 40-hour week will be earning close to £18-19k a year.
To reach £9.00 per hour by 2020, the National Living Wage will need to rise by 6 to 7 per cent per year, while average salary rises have been remaining stagnant at around 2 per cent. If those on the next wage level up see those below receiving a proportionately bigger rise, they may not be happy.
Discrimination
How does the age profile of your employees affect the wage bill? By law, the rise only applies to those aged 25 and over, but do you want to pay people of different ages differently for doing the same job? Can you afford to? It seems highly likely that differentiating by age alone will at some point face legal challenge.
If you do want to maintain a difference, for whatever reason, you must ensure you have in place a system to track each employee’s age and make sure they are paid the right legal minimum.
Take the opportunity to step back and analyse the wage bill as a whole – this may also unearth other pay gaps in the organisation, such as those between men and women.
Pay and benefits
Look beyond the immediate rise in April. Have you considered how you will afford the incremental increases that will bring the minimum National Living Wage hourly rate up to £9.00 by 2020?
Think about reward as a whole rather than just focusing on the change to pay. Could you change any bonus system to allow for a higher basic rate?
You should also be mindful of other costs coming down the line, such as increased compulsory pension contributions and the proposed apprenticeship levy (affecting large employers).
Feeling flush?
If you can afford it, do you want to use this as an opportunity to create a feel-good factor? Stepping up your lowest rate to the *Voluntary Living Wage (£8.25 an hour outside London) could improve employee morale immensely.
Communication
Whatever your final decision/s, don’t forget to tell your employees!
Su Allen HR helps employers by providing a range of HR support that includes advice on how to handle difficult situations, writing clear policies which ensure fairness and consistency in all aspects of managing employees, and providing coaching and training where required. Contact us on 01582 883299 if you’d like to hear more.
Helen Skepper
Su Allen HR
*Not to be confused with the National Living Wage!