What the National Living Wage really means

The National Living Wage means that all working people aged 25 and over (part-time and full-time) in the United Kingdom, will now be paid £7.20 per hour, a figure which is set to rise to £9 an hour by 2020.

The National Living Wage offers an increase of at least 50p per hour from the current minimum wage rates of £6.70. The initiative is intended to ensure a basic standard of living to all employees, and it will result in pay rises for around 2.7 million workers this year alone.

Doesn’t the UK already have a National Living Wage?

It does sound familiar, doesn’t it? However many people confuse the new National Living Wage  with what is known as “the living wage,” which is overseen by the Living Wage Foundation. The living wage is calculated on the public perception of a minimum acceptable standard of living at different rates in and out of London (£8.25 outside of London and £9.40 inside London).

While many companies choose to pay the Living Wage, it is not a compulsory requirement for employers.

Why is the National Living Wage even more controversial than the National Minimum Wage?

The National Minimum Wage came in to effect in 1999 and caused wide-scale controversy because over one million individuals feared they’d lose their jobs due to the minimum pay restrictions.

However, while the large increase to the National Minimum wage (which currently stands at £6.70) was significant, it is worth noting that it was applied to a much smaller base of people than the National Living Wage.

Today, the National Living Wage will impact up to 2.7 million people directly, and employers will also have to consider the differential between National Living Wage employees and those paid slightly more (and whether to increase this).

What about the fine print? Does the rest of the Budget actually support the National Living Wage?

When it comes to Budget announcements it’s always best to stand back and review how each individual announcement supports or detracts from another.

Often, Budget announcements may seem somewhat Robin Hood-esque in the way that they seem to take from the well-off and give to the less fortunate (or vice versa), but in this one, there is at least solid hope for young people and a sustainable National Living Wage.

True, grants for university students have been replaced by student loans. While this is a difficult decision for many students to accept, it will help to make the system more sustainable with more university places open. Companies will now also be required to fund training for apprentices on a large scale.

Overall, the general idea is that young people get better pay and a future with better training to obtain the best possible jobs.

How will businesses cope?

For some business though, the introduction of the National Living Wage could be a struggle financially. For business models with low margins, for instance, the cost impact is undoubtedly going to be difficult and there is going to be a process of adaptation.

Beyond this, companies have the future to think of. Employees rising up to the National Living Wage will still want to stay on a path of continued career progression, which will of course include remuneration of some form. For the businesses that struggled to get their employees up to the National Living Wage threshold in the first place, continued pay rises may seem an unrealistic set of hurdles.

On the flip side, employees moving up to the National Living Wage may begin to consider a future on the higher Living Wage, and may begin a job hunt. So how do companies deal with talent retention on top of an already difficult financial hit as a result of the new National Living Wage?

Promote productivity through reward, recognition and wellness

Rather than focusing on where to cut costs, employers should be investigating ways to make employees more productive, which is surely the best way to mitigate the knock-on financial effects of the National Living Wage.

Since a productive employee is usually a happy and healthy employee, it makes sense that many employers are looking to employee engagement platforms which include reward, communication, recognition and wellness support.

As part of an overall end-to-end reward programmes, some benefits and rewards are often less expensive to deliver than employers may realise. All of these elements working together are a great recipe to make employees feel valued in their workplace and to retain these employees while increasing productivity.

We’re looking forward to seeing how the National Living Wage will increase engagement - and we think it could be good news for everyone.

This article was provided by WorkAngel.