The government announced its intention to introduce a new premium pay rate, over and above the National Minimum Wage (NMW), for workers aged 25 and over. This is known as the National Living Wage and comes into effect in April.  This is different to the Living Wage proposed by the Living Wage Foundation, which campaigns for a voluntary minimum hourly rate of pay calculated by reference to the basic cost of living.

The NMW rate for workers 21 and over is currently £6.70. In April, the first National Living Wage premium of 50p will kick in resulting in a higher NMW rate of £7.20 for older workers.

According to a CIPD/Resolution Foundation survey, over half of all employers expect the National Living Wage to have an effect on their wage bill. Initially, it may well be a sector specific concern; it is most likely to impact in certain industry sectors such as retail, cleaning and hospitality services where there are a higher proportion of low paid workers. However, the Centre for Retail Research estimated that one third of those employed in the retail sector are below the age of 25 and therefore would not benefit from the proposals anyway.

How do employers plan to respond to this increase in costs? 20% of employers who participated in the CIPD survey said they would absorb the extra payroll cost, but 16% said they would reduce overtime and bonuses in response.  If this happened, the individual employee may be no better off financially. Some believe that the National Living Wage might act as a stimulus for change in the workplace that raises employee productivity, such as greater use of high performance work practices. Productivity could increase if a higher wage led to increased employee commitment and engagement, but this is by no means certain.

National Express has recently become the biggest private sector organisation to pay the higher, voluntary Living Wage in the West Midlands and the first private transport group in the UK to do so.  In a market where there are skills shortages, this could be a useful recruitment tool. However, it remains to be seen whether such an approach will be embraced similarly by the SME market which is already facing the challenges of impending staging dates for pension auto-enrolment and its impact on payroll costs.

If not already doing so, SMEs should start to plan ahead for the impact of these changes. For advice and assistance on these or any employment issues, contact Thursfields, Michelle Chamberlain on 01905 677041 or email: mchamberlain@thursfields.co.uk

 

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