How can businesses respond to the National Living Wage?

Yet the legislation – introduced on April Fools’ Day – is anything but a joke for many of the nation’s employers, and the debate about its costs and benefits seems far from settled.

Already high by international standards, this makes the UK’s low-pay threshold “one of the highest minimum wages” of all the developed economies, according to the FT. 

Tax on business

Indeed, some have denounced the policy as a ‘tax on business’. Moreover, its impact is centred on specific sectors; consider, for example, that hospitality and retail account for 46.5% of all minimum wage jobs, while 30% of all cleaning and hairdressing jobs pay the legal minimum.

This creates obvious challenges for businesses with limited resources, already operating in competitive markets and with tight profit margins. So how can they react?

First up, they could do nothing. Bury their collective head in the sand, ignore the new legislation and hope they don’t get caught. Not recommended.

Boosting productivity to absorb cost

Secondly, many are looking at innovative ways to boost productivity within their existing workforce. By investing in training and technology, larger enterprises can produce the same output, but with fewer people.

Hotel chain Premier Inn have introduced an automated ‘speedy-check-in’ operation for example, thus by-passing the need for front-desk staff. The danger here is that pressure simply increases on existing staff; for example, Boots will allegedly remove up to 350 assistant manager posts, but are unclear as to how the shortfall will be covered.

Many employers (particularly those in the retail sector) have no option but to hike prices, spelling potential danger for consumers. Macro economists will argue that, because the National Living Wage is being introduced across the board, employers in the domestic sector can raise prices without losing ground on competitors.

In reality, this seems idealistic - particularly when we consider SMEs already struggle to compete with multinational corporations more capable of resisting price increases from suppliers.

Moving the goalposts

Another option is to shift the proverbial goalposts. Whilst government have been busy restructuring a 7-day NHS, retailers have been re-assessing how they define overtime vs. core business hours. 

B&Q, Wilko and Morrisons have all cut overtime rates, whilst Waitrose has stopped paying Sunday rates to new staff. A controversial tactic – and one which has caused no shortage of unrest in the affected workforce.

Meanwhile, traditional perks are disappearing – and not just healthcare, gym memberships and so on. Food chain Eat have stopped paying staff for their lunch breaks, Caffe Nero have stopped giving staff free food and Zizzi’s announced an overhaul of their service charges (all tips are now distributed equally among all staff – including kitchen workers).

The benefit of fintech

For an idea designed to bring about positive change, it’s evident that the new legislation will present numerous challenges. Amidst the ‘broad-brush’ negative press however, two things are abundantly clear; a) financial health and wellbeing has never been more important for UK employers, and b) those employers are seeking ever more innovative, low-cost perks to help off-set increased costs.

It’s for these reasons Fintech represents an arena of rich opportunity and untapped potential for reward and benefits professionals in the 21^st century. Helping those in financial distress, promoting education, enabling access to the best products, and ultimately putting more cash in employees’ pockets will remain a priority for the HR sector. It’s little wonder therefore, that simple, transparent technology - designed to boost financial wellbeing at no cost to the business – is proving so popular.

Richard Sexton is client and business development manager at SalaryFinance. 

This article was provided by SalaryFinance.