Employment law

The Living Wage More questions than answers for business owners

Business Advice | 15 December 2015 | 8 years ago

The British Living Wage is part of the government's move to raise the pay of the lowest earners
The British Living Wage is part of the government’s move to raise the pay of the lowest earners
There has been much noise about the imminent raising of the Living Wage. Whilst trade unions understandably consider the move a triumph, business owners are genuinely worried that their businesses will struggle to meet the new pay threshold.

Chancellor George Osborne has announced changes to the compulsory National Living Wage from April next year for workers over the age of 25. The initial rate will be 7.20 per hour, rising to 9 per hour by 2020.

Let’s look at some figures. Staffbay.com is headquarted in Nottingham, in the East Midlands. Some 451, 000 people are paid less than the Living Wage in the East Midlands, according to new research published by KPMG. The figure indicates that 26 per cent of all employees in the region earn less than the Living Wage three per cent more than the UK average of 23 per cent.

The figure means that the East Midlands has the joint second highest proportion of workers earning below the Living Wage, alongside the West Midlands, Wales and Yorkshire and Humber. The highest proportion is found in Northern Ireland, with 29 per cent.

The Living Wage outside of London is currently 7.85. The research, conducted by Markit for KPMG, shows that UK-wide the median wage is 11.61.

Nationally, the figures show that part-time jobs are three times as likely to pay below the Living Wage as full-time roles. Despite accounting for less than one-third of all UK jobs, there are more part-time roles paying less than the Living Wage (3.2m) than full-time jobs (2.6m).

Implementing the new National Living Wage will add about three per cent to employers? wage bills, according to a study by the University of Lincoln.

The analysis shows marked differences between the major industrial sectors. Jobs in retail, agriculture and health and social care will be among those most profoundly affected. Almost half of employees in the food and hospitality industry would see wages rise, with a percentage cost increase to employers of more than ten per cent.

Whilst of course most people want to see workers be paid enough to live on, the raising of the Living Wage poses a conundrum.

Successive governments have long been criticised for the number of NEETs (not in education, employment or training) in the UK. When the Living Wage is introduced it will undoubtedly hit the bottom line of companies who employ people over 25.

There are mixed messages here. The government is rightly proud of the way it has brought unemployment down and employment up, but what will happen when businesses have to pay their over-25s the Living Wage? Will they stop taking on those over 25 and turn, instead, to those younger members of the workforce who are exempt from the Living Wage? Will this, in turn, lead to legal challenges from disgruntled over-25s who have been shown the door. What choice, in essence, do companies have if they want to remain profitable?

For business owners, the Living Wage looks like it will continue to ask more questions than it answers. Until we see who it actually benefits, then businesses have every right to be sceptical.

Tony Wilmot is co-founder at staffbay.com.

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