Is Your Company Ready for the National Living Wage?
Matt Hatcher, Director Commercial Banking West of England, at NatWest, shares his top tips on what local businesses can do to prepare for the National Living Wage.
On 1st April the new National Living Wage (NLW) will not only replace the current minimum wage for workers over the age of 25, it will raise it from £6.70 an hour to £7.20.
The Living Wage Foundation predicts that six million low paid workers will benefit from the NLW. According to government figures, many workers will see their pay packets rise by up to £900 a year, the largest annual increase in a minimum wage rate across any G7 country since 2009 in cash and real terms. In fact, by 2020, for example, a 25-year-old working a 35-hour week and receiving the minimum wage of £6.70 will have earned an additional £4,800.
In particular, the government is hoping that the move will eventually cut the amount it pays out in working tax credits, especially if plans to increase the NLW to £9 an hour by 2020 come to fruition.
When you consider that a company with 100 full-time workers will face an annual wage bill increase of £96,000, it’s easy to see how the NLW has caused consternation and trepidation amongst all sorts of organisations.
Nevertheless, while larger companies have greater flexibility in terms of absorbing such costs, it’s smaller businesses that are likely to be hit the hardest with projections showing that those with fewer than ten employees are likely to feel the greatest impact with a forecast increase of 1.5% in wage bills.
So what can local businesses do to prepare?
1) Get Cracking
Now, I have no doubt that everyone reading this will know exactly how to absorb these additional costs and will be utterly on top of the knock-on effects on other benefits such as pensions contributions but, if you’re not, then get on the case immediately. The NLW is here to stay and its impact will be far far wider reaching than you think.
2) Get the Numbers
Bring your HR and finance teams together and make them earn their keep. You need to know exactly how many staff are affected and by how much.
You need to know the exact costs for the next five years, especially if you’re looking at being hit with a £9 minimum wage by 2020. Are you going to change your hiring policy and focus on brining in cheaper apprentices and Under 25s? Or are you going to go the other way and look at the PR of benefits of paying all your employees the new rate, just as bookmakers William Hill have done with their 12,500 UK staff?
Remember, the bottom line is that you’ll be paying your staff more money and they will be very happy about this. However, the way in which you communicate this will be key. It is not a Scrooge-esque lump of coal for the fire, something that you’re giving grudgingly, something which the government has forced you to do etc; it is fantastic that we live in a society where workers are being justly rewarded and you are wholly supportive of the measure as it means that your industrious, keen and generally splendid staff have more money in their pockets.
Even if you don’t think that for one second, if you want to maintain the boost to morale the NLW will provide, then I’m afraid you need to at least pretend you do.