New year, new pay, and new way to lose money
Payroll is obviously a massive area for all businesses but what could change in 2017 and why. Following a year where the minimum wage rose and we voted to leave the EU many new challenges could present to add more money leaving companies in the pockets of their employees.
With article 50 being triggered before the end of march 2017 may provide a wake-up call which will really challenge the business as usual mantra. The EU is expected to not follow the example of the UK and consider a universal living or minimum wage.
National living wage
This was predicted to increase to £7.60 in April 2017 however Phillip Hammond announced it would rise only by 4% to £7.50. this falls a little shorter than planned and yet it’s too early to tell if it will affect the target of £9.00 by 2020. As such this will need to be added into any forecasting models for salaries.
Remember that holiday pay should now include results based commission as well as Sunday or bank holiday premiums.
The government announced that they will provide 15 hours’ free hours to working parents of 3-4 year olds from September 2017. This is available to families where both parents are working or single parent in a single parent home, working a minimum of 16 hours per week at the national minimum/living wage or earns less than £100,000 a year.
Gender pay gap
This will apply to employers with more than 250 UK employees. This will include LLPs, partnerships, companies, unincorporated bodies or other types of employing entity. Employee pay must be reported to demonstrate any differences between male and female pay.
Could the living wage end the high street?
It’s been predicted that around a million retail jobs will disappear by 2025 as the rising minimum wage and pressure from online technology that would equate to one third of today’s workforce start to take effect. As we know the minimum wage increased on April 1st and is expected to reach £9.00 per hour by 2020 it has been predicted that this will add up to £3.26 billion per year extra in wages, national insurance and pensions.
Some steps are being taken by retailers to try and combat this. Eat the food chain has removed paid breaks, Cafe Nero has removed the option of free lunches for staff while working, Tesco has reduced some premium rated pay options such as Sundays and bank holidays which are now being paid at time and a half and not double time. B&Q has removed allowances such as bank holidays in a similar manner to tesco however they have also removed their summer and winter bonus scheme. The most drastic action can be seen in the hotel sector where they have started replacing employees with more self service kiosks.
Other examples of actions that businesses have been forced to take are; reduced work hours, however there is a knock on effect on productivity
Reduce the headcount of the workforce by not replacing people who leave, or replacing them with staff on less hours or dual roles
Employing younger staff which will give an overall reduced wage bill however these staff are naturally less experienced
A few more positive ways companies could deal with this issue are;
Look to support staff to increase productivity to increase efficiency through better training, set targets and clear job descriptions
Price reviews ie increasing the cost of some of their lines to absorb the increases
Absorbing the increased costs and accepting a reduction in profits
The price of living has been decided!!
From 1st April 2016 the new National Living Wage will be implemented meaning all workers over 25 at that date will be entitled to be paid a minimum of £7.20 per hour. This will send ripples through the business world effecting profits, redundancy payments and employment tribunals. It has been confirmed that there will be no increases in Statutory Maternity, Paternity, Adoption or Shared Parental Pay, Maternity Allowance of Statutory Sick Pay for the year 2016 - 2017.
This means that the maximum Employment Tribunal compensatory award cap for an unfair dismissal will increase from £78,335 to £78,962 in line with the annual index linked increase. As before, the cap on the compensatory award is the lower of compensatory award cap or 52 weeks' pay. Dismissals for whistleblowing or related to certain health and safety reasons remain uncapped as do dismissals where there has been unlawful discrimination. Finally, this will see a rise in a “week’s pay” from £475 to a new capped amount of £479. This will then be used for calculating statutory redundancy payments and basic employment tribunal awards.
In addition to all these changes; it is also worth noting that in addition to the Government driven wage policies, there is the Independent Living Wage which is a figure that has been calculated by the Living Wage Foundation as the hourly rate payable calculated based on the basic cost of living in the UK. For this employers have been set £8.25 outside of London and £9.20 within the Greater London Authority, this is currently voluntary for employers but a number of high profile businesses have signed up to this and to be considered an ‘employee of choice’ businesses would be looking to align themselves with this.
New minimum wage, that’s added more than I thought
With the news that the new national minimum wage will increase from April many employees are pleased but what is the consequence for the employers. It’s estimated that it will add £3bn to the national average wage bill, and a further £400m a year to fund apprenticeships. As a result companies may have to trim their workforce down to keep a sustainable business practice; this would add pressure to the remaining workforce as they would still be expected to deal with the same number of customers with less support meaning this may impact performance and wellbeing. It is expected to be felt hardest in the so called economically fragile areas (Wales and the North).
The main industry to suffer is likely to be retail. Some companies have begun to address this by changing Sunday and bank holiday rates of pay. Tesco for one has taken the decision to change double-time on Sundays and bank holidays to time-and-a-half. Boots have taken another route, cutting jobs even though this is seen as being part of a wider restructuring than just response to the wage rise. Another more optimistic view of this is that with people earning more they will spend more as such balancing it all out slightly only time will tell.