The Living Wage: Considering the Implications for Local Businesses

On 1st October 2015 the National Minimum Wage changed. For adults over 21 the new rate is now £6.70 per hour, an increase of 3% from the current £6.50. This is the largest increase in the National Minimum Wage since 2008. The rate for 18 to 20-year-olds also increased by a 3% hike, going from £5.13 up to £5.30 per hour. 16 and 17-year-old workers received a more modest 2% rise, which still amounts to 8p per hour, going from £3.79 to £3.87. The most drastic hike seen was in the minimum wage for apprentices, which increased overnight by 20%, from £2.73 to £3.30 per hour. An estimated 1.4 million workers were affected by these changes, as well as thousands of businesses across the country.

Clearly, there will be implications to these increases for local businesses and many people are concerned. What is the impact likely to be for employers and employees, and what options are open for local businesses?

A Living Wage?

To coincide with the increased rates, the National Minimum Wage has been rechristened The Living Wage. For some, this has been a cause for raised eyebrows, drawing comments that this is principally a rebranding exercise rather than an occasion for real change. After all, from the perspective of a low paid worker the increase is fairly modest.

If a person is struggling to live on £6.50 per hour, would they be much better off in real terms on £6.70 per hour? For example, an employee working 30 hours per week on minimum wage after 1st October will now be £6 per week better off than the week previous. As the cost of living continues to rise, this small windfall is not going to go far. However, if the supposed benefits to low paid workers are questionable, then the impact on small businesses is beyond doubt.

The Implications for Businesses

Local businesses employing workers on the minimum wage will now see increased wage bills. At a time when the economic recovery is fragile, this is not good news. Using our previous example, a business employing 50 workers at the minimum wage have now seen an increased wage bill of £300 per week. This has the potential to be far more damaging to a company’s bottom line then it has to benefit the workers involved. It may even push some businesses into having to make job cuts, or at the very least, to reconsider hiring new staff.

However, the most worrying concern is that this is just the beginning. The July 2015 budget promised a living wage of £9 per hour by 2020. In real terms this means a 6% pay rise each year for the next five years, at a time when the rate of inflation is close to 0%. This would be a challenge even at a time of relative prosperity. As with so many of these measures, while large businesses can absorb the costs, the biggest impact will fall on SMEs, and local enterprises.

Furthermore, as of April 1st 2016 The Living Wage will increase to £7.20 per hour for over 25’s thus putting in a further salary band. For those between 21-25 the Living Wage will remain at £6.70 for now. This again puts a further burden on SME’s and local enterprises as well as having a huge impact on bigger business employing thousands of staff. For further information, go to https://goo.gl/8Ok5hR in order to find out just who is eligible.

The Options

For local businesses who want to grow, the spotlight turns to the younger generation as a source for recruitment. Will the comparatively lower costs of employing 16 to 20-year-olds lead to a growth in opportunities for younger people? This would certainly be a positive thing.

With few job opportunities for younger people, and the universities saturated to the point that degrees are becoming devalued, meaningful work placements will open up new avenues for young people. On-the-job training and work experience while young will put young people in a strong position to demand higher wages after they reached 21.

At the same time, from a business perspective, companies will get the benefit of a young, enthusiastic workforce who are keen to build up practical experience without the expectation of excessive wages. It may help strengthen businesses to the extent that they are able to put further investment into staff, counteracting the potentially negative effects on lower paid adults.

A boom in work opportunities for young people may offer an antidote to the phenomena of the 22-year-old graduate, who may come with good theoretical knowledge but has no practical life experience or realistic expectations of the workplace.

For local employers and employees, the living wage offers both challenges and opportunities for growth. Let us hope that the economy continues to recover, and expands fast enough to enable all people to take advantage of this.

First Base Recruitment

Are you an employer M4/M5 triangle with questions about the Living Wage or concerns about how it will affect you? To discuss the best recruitment options for your business, speak to our team on 01453 755330.

Tricia Hay

Tricia Hay is Owner, Director of First Base Employment Limited