In July 2015 Chancellor George Osborne announced that the UK government planned to introduce a compulsory minimum wage for all employees over 25 years of age. The ‘National Living Wage’ came into effect on April 1 2016 which increased the minimum wage to £7.20 p/h from the former £6.70 p/h. The principal is of course very sound; raise the amount of money people are paid so they have more disposable income to feed back into the economy. However it is also, rather cleverly, makes those under the age of 25 much more employable as they do not qualify for the 50p pay rise which should in theory tackle youth unemployment. This change has been on the horizon for some time and UK employers have been preparing for it and its implication for some time.
Whilst the benefits to all seem quite obvious there appears to be some retailers whose preparations for its arrival has not necessarily had the employees best interest in hand. For some the increase in wage levels will have significantly impacted on salary bills and as such forced retailers to review salary packages, extended hours payments, over time and benefits to compensate for the higher costs. It has been noted that some employees face a less and certain future if they do not sign up to a new employment contracts that could see them financially worse off (this includes no longer being paid a double time “premium” on Sundays and Bank Holidays). Other financial areas being impacted are bonus’s and Living allowances for being in city centers.
The increase in minimum wage will also impact how attractive the UK will be to people from outside the UK and the competitive race for good roles will be. Retail is always an attractive sector for those travelling, Students and people entering the UK due to the need for language speakers and a diverse customer service capability however how will this impact our unemployment?
In my opinion, in the main, these initiatives to the increase minimum wage are good for many reasons and can benefit employees, businesses and society as a whole.
It’s good for employees – employees who are paid the living wage report improvements in work/life balance, work quality, stress levels and general happiness. This in turn is a huge benefit for the businesses which employ those people and pay them the living wage.
It’s good for business
– Recruitment is easier – attracting quality candidates becomes far easier when you can offer them a higher wage than your competitors
– Staff retention is higher – those people earning the living wage are far less likely to move away for a lower wage
– Employee engagement increases – people feel valued and in turn value their employer, engaging on a more meaningful level. It is also reported that absenteeism and quality of work is highly improved
– The Brand image is improved, particularly Employer Branding.
It’s good for society – Many of the poorest families in the UK are actually in full time employment, causes of poverty are widespread and complex but paying a living wage can be part of the solution. There is also significant ethical justification for paying a higher wage to the country’s lowest earners. Those jobs on the minimum wage are often relatively low skilled but high in physical effort and anti-social hours.
But what are the Negatives?
Although there are clear benefits there is also another side to the increase which is mainly the negatives for the Retail industry itself.
Knock on wage increases – Raising the wage of the lowest paid employee can lead to a knock on effect up the chain. For example a retailer would need to increase the salary of the store supervisor, assistant manager and manager to keep the gap in salaries proportionate whilst maintaining a fair salary related to the complexity of job. It may not be as simple as raising the wage of the lowest paid employee.
Reduced hours – Another concern is that while hourly rates will increase there is a danger that employers will reduce the number of hours offered in order to offset the pay increase. This could result in overall earnings remaining consistent despite higher wages being offered.
Restructuring – The final point is that in order to fund the pay rise (in some cases this will cost millions of pounds to retailers already struggling with L-4-L profit decline) retailers may resort to stripping out layers in their staffing structure, leading to job losses. This is completely counter to the aims of these initiatives and may see more people unemployed.
The reality of this is that retailers are facing the most challenging time for a generation and the introduction of the National Living Wage was not welcomed. Even though it is morally the right thing to do there is the chance that the impact on the poorest people will not be as significant as hoped and due to measures implemented to accommodate the changes. The financial results for those poorest employees may in the end make no difference.
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