It’s that time of year where we see many of the changes announced in the budget statement come into effect, not least this year, the first increase to the National Living Wage (NLW) from £7.20 to £7.50 per hour. This additional tier to the National Minimum Wage was introduced by the government last year, applicable to workers aged 25 or over, requiring employers to pay a fair wage to meet the demands of increased living costs.

Many businesses predicted unintentional fall-out from the increased wage bill including job losses, reduced hours or pruning back of benefits, but according to recent studies these fears have not materialised to any great extent. It seems, employers have chosen to pass the additional costs of the NLW onto customers, minimising the impact on employees. Some less drastic reactions to the increased wage bill have included scaled-back recruitment activity and greater focus on workforce productivity.

As HR and Reward professionals, we might now be asking ourselves “What was all the fuss about?” If your organisation has already implemented an annual pay award this year, taking those salaries captured by the NLW increase out of the equation, there’s a good chance you still had around 2% of your pay bill to play with (in line with the average national pay increase predictions) - so fairly good news for most.

However, wherever you currently are in your annual review process, there are some important questions to consider: did you make optimum use of your pay review budget and what steps could you take now in preparation for next year (or this year if you are planning for your annual pay review in the coming months)?

I recommend the following activities underpin your decisions when allocating your pay award pot:

1)      Benchmarking – refresh your market pay insight with particular focus on the roles where salaries are just above the National Living Wage.  Ensuring these roles are being paid at least in line with market, and communicating this approach to employees, will ensure a fair and justifiable pay differential and help mitigate any disquiet around pay at the lower levels of the organisation.

2)      Pay scales – if you operate a pay framework you may find that the scales at the lower end are shifted upwards due to the NLW increase. Some readjustments may be required if too much overlap starts to occur or if employees at the upper end of the scale, not benefitting from the NLW increase, find their salaries pushed back towards the middle or lower end.

3)      Pay progression – maintain the good news story by allocating the 2% pay pot wisely, differentiate between poor, good and high performers, while at the same time targeting any salaries that have fallen behind market.

Any or all of these may seem like daunting or time consuming exercises but are fundamental in ensuring that while the National Living Wage provides a welcome uplift for the lowest paid individuals, it doesn’t have an unintentionally negative impact on the rest of your employees.

If you do one thing from the list above, now is the time to get you pay benchmarking in order, otherwise you run the risk of applying pay increases to salaries already above market which may then continually inflate year on year only compounding the issue; or losing key team members due to their pay falling behind market.

At Innecto, pay benchmarking is our ‘bread and butter’ and we have the expertise and flexibility to take this task off your hands at this busy time of year. Please get in touch if you’d like to find out more. 

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