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The National Living Wage came into effect on April 1st 2016.

It doesn’t need saying that there is clear advantage to employees, there’s an hourly rate increase of £0.50p per hour if you’re currently earning the minimum wage are 25 or over.  Those on zero hour contracts may not feel quite as buoyant at the increase, as an unscrupulous employer can reduce their hours meaning they take home no more money than before, though the industry in which they work still required their labour and many employers will pay accordingly.

But what about the employers? Is there a win for them?

The idea behind the national living wage is to ‘create a normal standard of living’ to enable workers to afford things like food, transport and paying bills,

When the voluntary Living Wage (currently  £9.40 per hour) was introduced in London, research by Queen Mary, University of London found:

  • Over half of employees (54%) felt more positive about their workplace once the LW was introduced and 52% felt more loyal
  • Staff leaving rates fell by 25%
  • Almost a third (32%) of workers felt it benefitted their family life by allowing them to do things like spend more time with family
  • Almost 4 in 10 (38%) workers reported financial benefits such as being able to buy more goods and save more

Employers also reported HR benefits at all levels with high calibre candidates, and found that clients and customers were also influenced as paying the living wage demonstrates corporate social responsibility.

However many economists are highlighting issues that are not only challenging for employers, but for the economy as a whole.

  1. Labour intensive industries, hairdressing and cleaning for example, will be most affected as they will see a proportionately greater increase in their wage bills, and The National Living Wage may encourage more workers to offer their labour creating greater unemployment.
  2. An increase in minimum wage can cause ‘cost push inflation’ as this cost to each business is passed on to the end consumer.
  3. The black-market labour force could become larger, allowing employers to avoid paying minimum wage, PAYE Tax and NI.  This leaves workers open to abuse and lacking protection in the most basic ways i.e. health and safety, and length of working hours for example.
  4. The poorest don’t actually benefit from the increase.  Many of the poorest in society rely solely on benefits, and the increase in the rate of pay does not have an impact on those households or families.
  5. Many who will feel the impact of the increase in the National Living Wage are those who’s income is the second in the household and therefore are unlikely to be below the poverty line. A household with a single income earner just above the minimum wage is likely to be relatively poorer.

On paper the minimum wage seems like a good idea for all except the employer.  However when looked at more closely, who are the winners?

 

More information can be found about the National Living Wage here:

https://www.livingwage.gov.uk/