What does National Living Wage rise mean for HR?
The National Living Wage (NLW) is set to rise from £8.91 per hour to £9.50 in today’s Budget. The Treasury confirmed on Monday ahead of Chancellor Rishi Sunak’s Budget that the increase for all over-23s will take place on April 1.
The 59p hourly boost will mean a full-time worker on the NLW will get a pay rise of more than £1,000 per year, according to the Government. The Government targeted NLW reaching over £9 an hour by 2020, although this was delayed by the impact of COVID-19 on the UK economy. This increase sits alongside tapered rises for National Minimum Wage (NMW) rates, covering workers under 23.
But there’s a question mark over how much better off workers will be, considering the simultaneous rise in National Insurance and cuts to Universal Credit, with a background of rising inflation. National Insurance Contributions for workers and employers will rise in April by 1.25% to help pay for the NHS and social care, while Mr Sunak has also ended the £20-a-week Universal Credit uplift.
Naturally, this proposed increase will have an impact on employers as well as employees – so what can you expect to change in April?
1. More costs
There’s no evidence to suggest NLW increases lead to job losses. However, it’s a big cost to absorb for businesses still struggling to get back on their feet after COVID-19, particularly those with a large proportion of NLW employees, such as retail, hospitality, and care. News stories abound about businesses who are also struggling with staff shortages, supply chain issues and rising energy costs, and it seems inevitable that at some point these costs will need to be passed on to the consumer.
2. Impact on pay levels
The NLW increase is more than twice the current 3.1% rise in the cost of living. Although inflation is going up, this increase (6.6%) is more than double this. This is good news for NLW employees, but it’s important to remember that this continued compression has a potential impact on levels above and ensuring this is reflected in any pay reviews (if relevant).
3. Gender pay
The NLW rise may also have repercussions for gender pay. It will bring up the lowest-paid quartile if this is predominately female employees, but not significantly enough to redress pay imbalance higher up the organisation.
4. Benefits and salary sacrifice
Rises in minimum wage rates can also impact on salary sacrifice arrangements, because it’s imperative that employees’ cash earnings do not fall below the NMW or NLW. Employers must ensure they have procedures in place to review employee cash earnings to maintain NMW rates as the increase in NMW/NLW rates means that in reality more people (who were previously comfortably above this level) may now be caught by it. Richard Thompson, Managing Director at technology benefit provider Let’s Connect, commented: “Salary sacrifice benefits such as pensions, cycle to work, home technology, cars, and childcare form an important part of an employee’s total pay and reward package. When offering employee benefits, employers should also consider systems that can help them manage their benefits, with built-in tools to help manage national minimum wage calculations.”
The proposed increase to NLW rates is positive, but it doesn’t move us away from the concept of a minimum wage. Ideally, employers should aspire to move away from paying at a minimum level. It will be interesting to see whether the Government’s broader message around a “high wage, high skill, high productivity economy” is reflected in other measures announced today.
We’ve written before about the idea of responsible reward, and the importance of being a fair wage employer. The Real Living Wage Commission encourages employers to pay a higher hourly rate for all workers aged 18 or over. This amount is calculated according to the cost of living, while the National Living Wage is a % of median earnings. The Real Living Wage is voluntarily paid by almost 9,000 UK businesses. As well as a boost to their public image, these employers also benefit from increased motivation and retention rates for employees, helping them stand out as an employer of choice within their industry.
In an ideal world, we'd like to see more employers offer their staff the Real Living Wage, investing in their people alongside providing good working conditions.
If you would like to discuss how you can best leverage your pay pot, we would love to hear from you. You can contact me directly - either by emailing me (firstname.lastname@example.org) or call us on +44 (0)20 3457 0894.