National Living Wage

Raise prices, tighten your belts or take the hit?

With the imminent increase to the National Living Wage, there have been a number of conflicting views on how this will effect businesses, employees and the hospitality industry as a whole.

So what exactly is going to change?

As of the 1st April 2016, all employees’ aged 25 or over and not in the first year of an apprenticeship will be legally entitled to be paid a minimum of £7.20 which is an increase of 50p.

The Government is also committed to increasing the National Living Wage every year, meaning that by 2020 the rate will be more than £9 per hour.

For those who see the glass half empty:

There is a fear that jobs could be lost due to organisations slimming down their workforces to save money or on the contrary, organisations will need to hike prices to make up the additional salary costs which will inevitably effect the consumer.

Another concern for organisations is the knock on effect the rise in National Living Wage may have with the rest of the workforce, as it is felt other employees may seek similar pay rises regardless of what they were earning beforehand.

For those who see the glass half full:

The National Living Wage could improve staff retention for low-skilled jobs and attract more people to consider a career in hospitality due to the higher pay rates.

A Government spokesman has been quoted by the FT saying, “Factoring in the new national living wage, the OBR estimate that the cost to business will amount to just 1% of corporate profits. To offset this, the Government is cutting corporation tax to 18% while smaller firms will also have lower national insurance contributions.

For those sitting on the fence:

There is a feeling that higher wages could attract migrants, which on a positive note would increase the talent pool within the hospitality recruitment industry however this could have an adverse effect for Britain’s seeking employment within the industry as there would be increased competition.

The fact remains that the hospitality industry is estimated to see its wage bills increase by 3.4% by 2020, with over half of the sectors employees receiving a pay rise in this time and employers having to find an additional £1.1bn for wages in 2016 alone.

Are you prepared for the changes?

If you haven’t given the National Living Wage much thought, there’s still time as the changes only come into play on the 1 April 2016. The Department for Business, Innovation and Skills (BIS) has issued 4 simple steps to ensure you’re ready for the upcoming changes.National Living Wage

  1. Know the correct rate of pay
  2. Find out in advance which staff are eligible
  3. Update the company payroll in time for 1st April 2016
  4. Communicate the changes to your staff as soon as possible