Reflections on the National Living Wage and its impact on the retail sector

In July 2015 Chancellor George Osborne announced that the UK government planned to introduce a compulsory minimum wage for all employees over 25 years of age. The ‘National Living Wage’ came into effect on April 1 2016 and under this new law the minimum wage has increased to £7.20 p/h from the former £6.70 p/h. The principal is of course very sound; raise the amount of money people are paid so they have more disposable income to feed back into the economy. It also, rather cleverly, makes those under the age of 25 much more employable as they do not qualify for the 50p pay rise which should in theory help to tackle youth unemployment.
Taking the concept of the minimum wage one step further I was recently introduced to the Living Wage Foundation at an HR forum hosted by the retailTRUST. Not to be confused with the ‘national living wage,’ the Living Wage Foundation is a not-for-profit charity whose aim is to increase the living wage further. Their view is that there should be two levels of the living wage, one for London and one for the rest of the UK, both of which exceed the hourly rate set by the government, standing at £9.40 p/h in London and £8.25 p/h in the rest of the UK. There are currently over 2,300 businesses across the UK who have chosen to pay this higher level of the living wage and have the ‘Living Wage Employer’ accreditation which goes with it.
The National Living Wage has been on the horizon for some time and retailers were prepared for its arrival. It would have been a headache back in July but the HR Directors I have discussed it with had their plans in place by the end of 2015. Only now are those plans filtering into the public domain and some retailers are taking steps which counteract the aims of the new legislation. For example it was reported in the last couple of days that Kingfisher (owner of B&Q and Screwfix) is threatening to sack employees that do not sign up to a new employment contract that could cost staff up to £1,000 a year – this includes staff no longer being paid a double time “premium” on Sundays and Bank Holidays. It is also proposing to cut summer and winter bonuses and perks such as allowance for people living in London, this is an obvious effect to balance the books.  Another very interesting article to make the main stream press was the likelihood of increased immigration as a result of the higher wages on offer in the UK compared to the rest of Europe, this is a highly charged argument given the EU referendum on 23rd June
It is my view that, in the main, these initiatives to the increase minimum wage are valid on many levels and can benefit employees, businesses and society as a whole. 
It’s good for employees – this may sound like a no brainer but employees who are paid the living wage report improvements in work/life balance, work quality, stress levels and general happiness. This in turn is a huge benefit for the businesses which employ those people and pay them the living wage.
It’s good for business 
  • Recruitment is easier – attracting quality candidates becomes far easier when you can offer them a higher wage than your competitors
  • Staff retention is higher – those people earning the living wage are far less likely to move away for a lower wage
  • Employee engagement increases – people feel valued and in turn value their employer, engaging on a more meaningful level. It is also reported that absenteeism and quality of work is highly improved
  • The Brand image is improved, particularly Employer Branding.
With my recruitment hat on I see first-hand that retention and engagement are at an all-time low based on the financial struggles people have faced during the recession; seldom do staff celebrate 25-30 years’ service in one company. Financial advancement has become the single main motivator for people as they move from job-to-job.
It’s good for society – Many of the poorest families in the UK are actually in full time employment and much has been made of the UK’s disproportionately high welfare bill. Causes of poverty are widespread and complex but paying a living wage can be part of the wider solution. Furthermore there is significant ethical justification for paying a higher wage to the country’s lowest earners. Those jobs on the minimum wage are often relatively low skilled but high in physical effort and anti-social hours. Those who stack shelves and clean offices are working physically demanding jobs at anti-social hours.
Despite the obvious positives there is another side to the story, which relates to the above point about retailers needing to balance the books. At the recent HR summit, at which I learned of the Living Wage Foundation, I discussed this point with a number of retail HR Executives there were clear points of concern raised.
Knock on wage increases - Raising the wage of the lowest paid employee can lead to a knock on effect up the chain. For example a retailer would need to increase the salary of the store supervisor, assistant manager and manager to keep the gap in salaries proportionate whilst maintaining a fair salary related to the complexity of job. It may not be as simple as raising the wage of the lowest paid employee.
Reduced hours - Another concern is that while hourly rates will increase there is a danger that employers will reduce the number of hours offered in order to offset the pay increase. This could result in overall earnings remaining consistent despite higher wages being offered.
Restructuring - The final point is that in order to fund the pay rise (in some cases this will cost millions of pounds to retailers already struggling with L-4-L profit decline) retailers may resort to stripping out layers in their staffing structure, leading to job losses. This is completely counter to the aims of these initiatives and may see more people unemployed.
The reality of this is that retailers are facing the most challenging period on the high street for a generation and I know the introduction of the National Living Wage was not welcomed, even though it is morally the right thing to do. However it will not be as straight forward as the poorest people getting the pay rise they deserve, somewhere along the line someone will have to foot the bill.
For a confidential discussion about recruitment or career opportunities in the retail sector contact Dave Mann, Operating Director at Michael Page Retail.
Dave Mann
T: 0207 269 2562