Employers urged to ‘go beyond’ national living wage

New rate need not mean the end of pay rises if productivity is addressed, says CIPD, as evidence emerges of further cuts to benefits and conditions

The government’s national living wage (NLW) has come into effect today, constituting the largest increase to UK minimum pay in history. But employers are already being urged not to see the £7.20 an hour rate for those over 25 as a one-stop solution to their reward issues, or to neglect the role of productivity.

The wage will affect around 1.8 million people but does not cover younger workers, who will continue to receive the national minimum wage. And it is not to be confused with the Living Wage Foundation’s voluntary wage, which stands at £8.25 an hour and £9.40 in London.

The foundation today called for employers to reward their staff beyond the NLW because, it argued, it is not calculated according to the current cost of living. It urged businesses to “aim higher” and claimed many had the budget and resources to go beyond the £7.20 rate.

Charles Cotton, CIPD performance and reward adviser, said employers should take a rounded view of reward, within the boundaries of affordability. But he added that it was important not to decouple the NLW from the crucial and ongoing debate about productivity: “Will employers see the wage as a cost issue, resulting in cuts to reward and job losses, or as a challenge to improve both performance and pay?

“Today’s pay rise can become more affordable if it is matched by improved employee productivity. Not the kind that comes from getting rid of people and making the rest work harder, but by reviewing working practices, work and job design, and ensuring employees have the best possible chance to be as productive as they can be in their roles.”

Recent ONS figures suggest that employees who work for businesses with fewer than nine staff members will benefit the most from the increase, as 16.3 per cent have been earning less than the NLW. This compares to 5.2 per cent of employees in companies with 5,000 or more staff.

The introduction of the NLW has also been met with further reports of businesses adjusting or removing benefits or altering terms and conditions, in what could be seen as an attempt to offset the increase to their payroll.

Yesterday, People Management reported that a manager at DIY retailer B&Q had gained more than 120,000 signatures on a petition calling for his employer not to remove time-and-a-half pay for working on Sundays and double time for working on bank holidays, among other alterations to bonuses and allowances. B&Q denied the changes were related to the NLW.

The Guardian today reported that Samworth Brothers, the maker of Ginsters pasties, is planning to cut Sunday and bank holiday pay and remove paid breaks altogether. The company, which employs 8,500 people, admitted that even after the minimum wage increase some employees’ pay would fall by £5 a week.

Tesco is reported to have cut overtime pay, and Whitbread – owner of the Costa Coffee and Premier Inn chains – said it will reduce plans to recruit new staff because of the NLW. Other businesses have been removing higher rates for weekend work or even ending pay for tea breaks, according to reports.

Cotton warned: “Employers should think twice about using the excuse of the NLW to trim the pay bill. While it will reduce pay costs, lower employee engagement could result in other costs going up, such as those associated with higher employee turnover and absences, and lower productivity.

“I suggest that HR talks through the challenges with its employees to look at how the organisation could improve the way it designs its jobs, and manages and develops its staff.”

There have been suggestions that some businesses are concentrating recruitment on the under-25s, an act that employment lawyers have warned could leave them open to discrimination claims, even if it is carried out on an ‘informal’ basis.

Cotton said: “If you employ more people under the age of 25, what are you going to do when they hit 25? If you have spent time and money investing in their skills and they are a high performer, do you really want to get rid of them because of their age? Will customer service or productivity suffer because of the turnover in staff?”

Story via – http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2016/04/01/employers-urged-to-go-beyond-national-living-wage.aspx

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