How businesses are responding to National Living Wage increases

Rebekah Tapping, HR Director, Personal Group

As the impending rise to the National Living Wage (NLW) draws nearer, the pressures on businesses to look at their remuneration package increases. Evidence from a recent report from the National Minimum Wage Low Pay Commission[1] suggests that businesses are responding to the increasing wage bills in a number of ways; by accepting lower profits, increasing prices, making cuts to non-labour costs, restructuring their workforce and pay structures, and increasing output through improved productivity.

We know that employers support the ambition to eliminate low pay, however the above responses from businesses show that increases in NLW are not without consequence. In CBI, Chartered Institute of Personnel and Development (CIPD) and Federation of Small Businesses (FSB) surveys, between 50 & 70 per cent of employers reported having absorbed some, or all of the cost of the NLW through lower profits. Employer stakeholders repeatedly report that this is not sustainable in the long term; if profits are repeatedly cut then eventually the business becomes non-viable.

Between 20 and 50 per cent of employers in these surveys reported raising prices in response to NLW increases, with respondents to the FSB’s survey at the top of these ranges. This suggests a higher proportion of smaller firms have taken this kind of response, perhaps reflecting the limitations SMEs can face in their adaptation strategies; they may lack the economies of scale to make meaningful changes to workforce or pay structures and they may not have the funds to invest in productivity improvements, instead opting to cut investment to save on cost. In stakeholder evidence and surveys, smaller employers are more likely to say they have cancelled or scaled down investment in response to the NLW. For example, almost 30 per cent of responders to the FSB’s NLW survey said they had done this, compared with 6 per cent of large firms in CIPD’s survey.

With some employers struggling to keep up with National Living Wage requirements, it is paramount that businesses are savvy with their spend and think economically about investment. For example, high employee turnover and absenteeism has significant recurring costs, investing in employee retention and on-time health provisions could help mitigate these rising costs

Employee benefits can counteract the pressures of pay increases

Employers have a duty of care to their workforce to ensure they are remunerated fairly. Salary forms a part of this, however there are other areas that businesses can invest in to enhance their employee offer.

Employee benefits packages are becoming increasingly popular. It has been reported that 60% of people consider benefits and perks to be a major factor in considering whether to accept a job offer, with a further 80% of employees saying they would choose additional benefits over a pay raise[2]. Bringing mutual benefits to both employer and employee, the right programme will increase employee engagement and boost productivity, at the same time supporting the individual needs of the workforce with all aspects of their wellbeing.

Employee benefits programmes do not have the cost implication that some may think. There are many benefits that are simple and easy to implement.

In a recent survey[3], Healthcare Insurance was number one on the list of the types of benefits/perks that are valued more than a pay rise. Providing employees with easy to access, cost effective employee insurance plans helps protect employees against the unexpected. It also helps employers to avoid presenteeism and ultimately maintain a happy, healthy work environment.

Everyday discounts offer substantial long-term savings on everyday purchases and adds value outside of the workplace, helping employees save money in their day-to-day lives.

There is also a broad range of salary sacrifice schemes available, some of which include cycle to work schemes, parking permits and childcare vouchers. In recent years there has been an increase in the popularity of tech benefit schemes. These make it easier for employees to access the latest technology by spreading the cost through their salary.

All of the above can help make a business’s overall package more attractive and have a significant impact on employee retention and attraction.

Supporting the whole person

Employee wellbeing is high on the agenda of most organisations. One study[4] reported that 97% of staff surveyed said they believe their employer has a responsibility to support the mental health and wellbeing of their staff. Add to this the 17.5 million lost workdays[5] in the UK attributed to mental health and it is clear that awareness of mental health is increasing.

Employers must demonstrate their commitment not only to mental wellbeing, but financial, physical and social too. Streamlining this through an employee benefits programme is a great way to ensure you are supporting the needs of individuals in all these areas.

Importantly, accessibility to such services is key, therefore a programme that is online and app-based, gives the ability for people to access the services they need wherever and whenever they need it the most.

Services such as:

• Employee Assistance Programmes (EAP) give employees access to free, confidential advice on a variety of issues, and an impartial support network.
• On Demand GP whereby employees can get immediate access to online GP appointments and even get prescriptions should they need them. This service can be invaluable and prevent staff needing to take time off work to attend their own GP practice.
• Discounted gym memberships can encourage people to increase or improve their physical activity which in turn can have a positive impact on mental health.
• Offering access to financial education and affordable loans will support those that may be experiencing money worries and help with their financial wellbeing.
• Employee Reward and Recognition tools allow employees to feel connected with their peers and the wider business, increasing engagement and overall workplace happiness.

A holistic approach to wellbeing is critical. One size does not fit all therefore businesses need to ensure they are tailoring their offer to the meet the needs of their business.

The power of engagement

One of the factors monitored by the Low Pay Commission when looking at the NLW is increasing productivity. There has been varying research over the years to look at whether increasing pay floors increases productivity, but findings have been mixed.

One fact we do know is that when people are engaged, they are naturally happier, motivated and ultimately more productive. Something that all businesses strive for.

Personal Group are no different, our business is built on one simple fact: happy people are more productive at work. This ethos combined with our passion for protecting the unprotected is what makes our solution unique. We exist to help organisations across the UK build better connections with their people through tailored, flexible and innovative services, benefits, and insurance products.

For more information on how Personal Group can help your business contact hellohapi@personalgroup.com

1. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/844178/The_National_Living_Wage_Beyond_2020__1_.pdf
2. Glassdoor’s 2015 Employment Confidence Survey
3. https://www.glassdoor.com/blog/ecs-q3-2015/
4. https://employeebenefits.co.uk/mental-health-responsibility-97/
5. https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/labourproductivity/articles/sicknessabsenceinthelabourmarket/2018

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