What employers need to consider about their pay structures with rise in minimum wage
The National Living Wage (NLW) is a positive step towards fairer compensation, undoubtably increasing living standards for millions of UK workers.
However, it is also important to understand the ripple effect that the increase creates for businesses.
Combined with rising employers' National Insurance contributions, they will place a heavy burden on businesses of all sizes and sectors.
Salary structure compression is a consequence of elevating entry level pay and, if left unchecked, creates challenges within organisations.
Employers need to balance wage increases with the commitment to maintaining competitive, fair salary structures.
The balancing act to ensure that wage compression does not create challenges is not easy to navigate, but effective planning will help to ensure that everyone from entry level to senior management feels valued and adequately compensated.
Effective planning and budgeting are essential to manage these changes without disrupting operations or profitability, and to ensure organisational sustainability and vision is achieved.
Beyond April 2025, we are already having to budget 1.5% more before our pay round offering. The time to start planning for a salary structure that meets your business needs is now. The key issues to consider are:
Affordability
It’s critical to ensure that any offer you are considering is sustainable.
It’s not just the base costs, but with enhanced NI and pension contributions, your on-costs need to be factored into your budgeting.
Knowing the value of your roles in the external market can really help in nailing down a sustainable offer that will resonate with your people.
NMW/RLW impact
With the National Living Wage, for a 40-hour week, hitting £25,500 beyond April, what impact is this going to have on your pay framework?
The options are complex.
You may choose to uplift your entire workforce to match the range of 6.7%-18% increases - admittedly, we don’t have any clients that will be doing this.
You may choose to consider upskilling certain entry level roles in order that you can remove headcount higher up your pay framework - but how quickly can you land this approach, and what is the risk to delivery within and across your business?
You may choose to restructure areas of the business, putting more accountability on your supervisory roles - but it’s likely that people may not want to do more for the same amount of money.
If you have committed to being a Real Living Wage (RLW) employer but now find that keeping up with the 26% uplift over the last three years is not sustainable, it may now be the time to have tough conversations about sustainability.
Employee value proposition
It’s likely that you aren’t going to be able to offer a large cost of living uplift, so looking at the options that you offer around your employee value proposition EVP is critical.
Benefits that are genuinely valued have a bigger impact in the current financial climate for employers.
Having a culture that offers a clear statement of valuing your people is a critical element to your remuneration offering.
Within this range of options, there are some unintended consequences that can have a negative impact if you don’t pitch your offering to match the entire demographic within your business.
Pensions are really attractive to some, to others it’s an expense that can be avoided whilst struggling to put food on the table. It’s time well spent identifying a diverse and valued set of benefits for your EVP.
An equitable approach
Most people understand that it’s tough designing a pay framework that will work for everybody.
A major factor to consider is ensuring that you are consistent (equitable) in your approach.
Inadvertently singling out one group of your people as being worthy of special treatment - because you may genuinely want to show that you value them - can be misconstrued as being inequitable.
Not only that, but you may also inadvertently fall foul of the Equality Act 2010.
Progression
In your consideration for this year’s pay round, it’s good to consider both April 2025 and April '26 (and '27) when it comes to role progression.
Maybe this year you are going to land on an affordable 2% pay review outcome, but how about being able to tell a wider story of progression.
It’s powerful to be able to show how you will support your people to develop and progress whilst working with you.
Being able to tell a multiyear progression story that will upskill your people and enhance their pay is such a strong retention tool.
In conclusion, it’s a difficult call for April 2025.
The points above aren’t going to enhance your available budget, but they will give you food for thought in ensuring a competitive and sustainable approach to this year’s pay review.
Supplied by REBA Associate Member, Turning Point
Our data and insight helps organisations build the best reward strategy for their business and people.
