The pros and cons of National Living Wage and its affect on your business

By Alexandria Evans, associate in employment law at Lupton Fawcett Denison Till.

Since the new National Living Wage rate came into force last month, many employers have been counting the costs of the increase to £7.20 per hour for their workers aged 25 and over.

Whilst the Government’s message (not least through its banal television advertising campaign) is that this increase in hourly rate is a positive step for workers, there will inevitably be those that disagree with this view.

It is estimated that the increase has affected 1.3 million workers. Large employers have warned of significant profit reductions. Feedback from small employers or those with tight profit margins, such as those in the retail and hospitality sectors is that they may be forced to close their businesses altogether as a result of the rise in basic hourly pay. The Office for Budgetary Responsibility has warned that up to 60,000 jobs may be lost as a result of the change.

Most employers will have already developed strategies to manage the impact that the increased hourly rate will have on their businesses. Measures to tackle an increased wage bill could include:

• a reduction in hours for those employed under zero hours contracts
• redundancies
• removal of enhanced overtime rates
• changes / reductions to bonuses, commissions or benefits in kind
• increased pricing for customers

Whether or not such changes will be palatable to those affected will depend upon the employer’s relationships with its customers and staff and workers’ existing contractual terms. Changes to terms and conditions could give rise to legal complaints from employees, such as breach of contract and unfair dismissal. Collective consultation may also be required if more than 20 workers are affected by any proposed changes.

In some cases, employee and public relations issues will be of greater concern to businesses.

Take B&Q. It is accepted that the DIY giant is one of the best remunerators in the retail sector. However an employee affected by B&Q’s changes to allowances and overtime premiums recently commenced a petition (now signed over 133,000 times) to implore B&Q to reconsider these changes. Public feedback included ‘disappointment’ at a company considered to be inclusive in its approach to recruitment and pay, notwithstanding the fact that B&Q pays in excess of the basic minimum hourly rates to workers already and is committed to also paying the £7.20 rate to those under 25.

HMRC has introduced new measures to tackle employers that do not pay national minimum wage (NMW), which include:

• doubling the penalties for non-payment of NMW
• a new HMRC team dedicated to pursuing serious deliberate failures to pay the NMW
• company director disqualification for up to 15 years for businesses that do not pay the NMW

Naming and shaming of employers found at fault could also cause serious reputational damage and therefore employers should ensure that they are calculating NMW rates correctly for all workers to ensure they do not fall foul of these tougher penalties.