The National Living Wage – A Catalyst for Change
The National Living Wage comes into effect on 1 April 2016. What is it, what’s behind it, and what will it really mean for workers and businesses?
How much is it?
All workers aged 25 and over will be entitled to a minimum income of £7.20 per hour. This will rise incrementally to £9.00 per hour by the year 2020.
The Office for Budget Responsibility estimates this to be an overall increase of £4,800 per annum for a full-time worker on minimum wage.
Why is a living wage being implemented?
Firstly, the government says it wishes to move away from a low-income workforce subsidised by benefits (e.g. working tax credits). In other words, shifting some of the burden onto employers and businesses by increasing wages.
Secondly, the government hopes it will force employers and businesses to work more efficiently. Economic data suggests labour productivity (output per worker) is a real concern for the UK, particularly when compared with other countries with whom we compete. This will be a hot topic in 2016 and in the years to follow.
Will Employees have to work harder for it?
Some of the costs associated with the living wage might be passed on to customers or shaved from profits, but in the main it will be addressed by finding efficiencies.
With UK workers already working long hours and subject to high levels of stress, these efficiencies must be achieved by working smarter, not harder. Expect to see unprecedented levels of business restructuring, with less managers, a trickle down of responsibilities, and a reduced pay gap between workers and managers.
To assist with that, expect to see more investment in training, skills and qualifications, and heavy investment in new technologies. Also, the best employers will quickly appreciate that staff morale is now more important than ever.
Can an employer dismiss workers aged 25 and over to avoid the living wage?
Employees are protected against dismissal, and workers cannot be subject to a detriment, just because they will or might qualify for the minimum wage (or a particular rate of it).
So, dismissing a worker because they are about to turn 25, or targeting shifts or overtime at those under the age of 25 to save on labour costs, is likely to be unlawful.
What will the government do to help Employers?
Corporation tax is to be cut from 20% to 18% by the year 2020, and the rate at which national insurance becomes payable will be eased. However, this won’t outweigh the increased costs for many businesses, particularly those in labour-intensive industries.
A catalyst for change?
Without a doubt, yes. More will be expected from the UK workforce, with unprecedented periods of change in the short term. Hopefully, though, an overdue investment in both workers and new technologies will equip us with the skills, tools and confidence to live up to the challenge.