It’s now roughly one month on from the introduction of the national living wage; an attempt by the government to boost the earnings of the lowest paid workers. There have been a lot of press reports about what employers appear to be doing to fund the new rate, but so far there has been little evidence or stories emerging other than short term fixes in response to the rapid introduction.
The main headlines have centred on employers cutting packages. This has ranged from restaurant chains such as Zizzi cutting the amount that could be earned from tips and reducing the choice of free meals available to employees, Caffè Nero removing staff entitlement to a free lunch, and others such as B&Q, Tesco, John Lewis and Dunelm, reportedly making cuts to weekend or overtime premiums and wider remuneration packages. While some employers have argued the changes are unrelated to the introduction of the NLW, it does beg the question how sustainable is this cutting of packages in the long term?
I completely understand the reaction taken by organisations to fund an enormous cost with little notice – the money has to come from somewhere and they weren’t given a lot of time prior to implementation. But what is troubling me, is that this is only year one – the aim is to increase the rate from £7.20 to £9 by 2020. The media has picked up on the headline cuts to packages, but what is more critical is understanding the long term game plan. My hope is that the initial reactions reported were just that - rabbit in headlight ones - and that they will now sit back and consider their reward packages more strategically; not just in terms of funding future increases, but the employee deal they are offering and the image they wish to project as an employer.
By eroding packages, not only will you eventually reach an end point when the only things to go are jobs themselves, but you also start to lose sight of your Employee Value Proposition (EVP) – what is it that makes your organisation stand out from others and makes you an attractive employer? While the free lunches or paid breaks might not be a stand out benefit in themselves, when you are competing in a highly competitive marketplace such as retail or hospitality, how do you get your employees to engage with your brand and purpose if there’s nothing unique about working for you? By cutting these type of benefits you also lose the link your employees have with your product, and that can affect sales. You might have a fantastic culture and team camaraderie, but is that the most important thing for prospective employees who are earning the national living wage? The benefits you offer say a lot about who you are as an employer and what it means to work for you and negative publicity about cuts can damage an organisation’s reputation. If you cut benefits that are valued by employees, you risk disengaging them and that can potentially lead to reductions in productivity or increased absences, turnover and costs to recruit.
There’s also been a lot of speculation about the impact the NLW is having on recruitment practices; such as companies taking on younger workers, using apprenticeships and self-employment as these are exempt from the NLW. Again while this may fix the hole in the fence in the short term, it will be interesting to see the longer term impact this has on the staffing mix and skill sets in organisations. Will the unintended consequence be an increase in discrimination claims, a spike in unemployment numbers for those over 25 who become too expensive to employ, and a loss of experienced workers?
Finally, while it’s had little press so far, it won’t be surprising to hear that the next line of attack for employers will be a review of structures. As the NLW increases, pay differentials between roles will erode unless the same increase is passed on to other higher paid roles. Again this will require more than a knee jerk reaction. Proper consideration will need to be given as to the roles that are required, what skill sets are needed and how employees can progress both their pay and career. It’s likely for a number of organisations that flattening structures will bring real benefits, including clarity for employees about the differences between roles. But be warned; simply reducing the number of levels to avoid having to uplift pay for more senior colleagues may not necessarily be the right answer for every organisation.
Now the immediate crisis of the April 1st implementation date has passed, it will be interesting to see the longer term plans organisations have for ongoing management of NLW and what impact we will see on recruitment, reward and organisation design.
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