Employers prepare for increase in minimum wage next April

WHEN Chancellor George Osborne stood at the dispatch box last summer, the introduction of the national living wage was greeted with cries of delight by parties on both sides of the Commons. But like so many announcements, the devil was in the detail.

Hospitality companies like Macdonald Hotels look to reduce costs but maintain high standards for guests. Picture: Adrian Wroth
Hospitality companies like Macdonald Hotels look to reduce costs but maintain high standards for guests. Picture: Adrian Wroth

Campaigners criticised the move, branding it as simply an increase to the national minimum wage instead of the introduction of a living wage.

Osborne’s measure involves paying workers aged 25 and over £7.20 per hour, an increase of 50p above the current national minimum wage, with the total due to rise to £9 per hour by 2020.

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The Living Wage Foundation thinks the living wage should be set at £8.25 per hour and £9.40 per hour for workers in London.

So why the difference? The UK Government’s figure is calculated by the Low Pay Commission and is based on median earnings, while the Living Wage Foundation uses the cost of living to calculate its rate.

“While any wage increase is welcome, there is absolutely no doubt that the higher national minimum wage announced in the Chancellor’s budget last year is not a living wage,” says Roseanna Cunningham, cabinet secretary for fair work, skills and training.

“It is also not universal, blatantly discriminating against under 25s who are not eligible. For the majority of households, it will also not be sufficient to offset the cuts to benefit income announced in the budget, which are leading to greater inequalities.”

The Scottish Government used the living wage as the central tenet of its Scottish Business Pledge, which was introduced last year.

In order to sign up to the pledge, all companies need to pay the living wage and then adopt at least two of the remaining eight elements, as well as committing to meet all nine requirements over time.

“Progress on the living wage has been significant in the past year, with more than 80 per cent of Scottish employees now receiving the living wage or higher and over 440 Scots-based organisations now living wage-accredited,” says Cunningham.

“This marks excellent progress towards our target of having 500 employers accredited by the end of March, but there is still more to be done.

“The Scottish Government is proud to be the first government in the UK to be accredited last year and we continue to work with the Poverty Alliance to promote the living wage.

“We have heard from living wage businesses about the significant benefits to those who invest in their staff, including increased staff morale, reduced absenteeism and higher levels of productivity.”

Carla McCormack, policy and parliamentary officer at the Poverty Alliance, which runs the Scottish Living Wage Accreditation Scheme, agrees with Cunningham’s assessment of the differences between the Chancellor’s national living wage and the Living Wage Foundation’s version.

“There is a difference of over £1 in the hourly rate of the new national living wage and the living wage, and this is a considerable difference in people’s pockets,” she says.

“At a time when over half of people in poverty in Scotland are in a household where someone works, it is more important than ever that employers ensure their staff are taking home a fair day’s pay for a fair day’s work.”

Business groups have been helping to prepare their members for the introduction of the national living wage, with industries that depend on large numbers of staff – such as care, food and drink, hospitality, and retail – at the forefront of coming up with innovative ways of meeting the higher wage bills associated with paying the increased rate.

“Feedback from members suggests that small firms are approaching the introduction of the Chancellor’s national living wage in a variety of different ways,” explains Andy Willox, the Federation of Small Businesses’ (FSB’s) Scottish policy convenor.

“Firms in high-profit industries such as financial services are virtually unaffected. However this move is a real challenge for businesses in highly-competitive, low-margin sectors like hospitality, retail and care.

“Each firm will be developing its own approach but many are having to re-examine both the way their firm operates and their plans for growth.

“We completely understand why governments and political parties want to increase the amount people are paid. However the FSB believes that the independent Low Pay Commission should continue to play a central role in setting minimum wage levels.”

Hugh Aitken, CBI Scotland director, adds: “Over time, raising productivity is the best way for businesses to make faster pay growth affordable. This means focusing on boosting skills, including management practices, implementing new ways of working or investing in new technologies.”

Improving productivity is also a key factor highlighted by Gareth Williams, policy director at the Scottish Council for Development & Industry.

“Government has a key role to play and government and employers need to work together to help lower wage sectors respond positively to the challenges and keep a lid on costs – such as targeted advice and support to improve productivity, support through procurement and prompt payment from government at all levels and larger businesses, and reform of business rates that flexes with economic conditions,” he says.

“Some of the options firms may consider could include ways to reduce their overall employment spend, such as reducing other non-wage benefits, cutting pay differentials or opportunities for progression, trimming pay enhancements such as premiums for working on Sundays, using more technology like self-service checkouts, or perhaps even reducing headcount,” points out David Lonsdale, director of the Scottish Retail Consortium. “The Chancellor himself explicitly said that he expected 60,000 job losses from the introduction of the national living wage.”

Despite many businesses taking innovative steps such as using new technology to help alleviate the costs, the impact of the introduction of the national living wage cannot be underestimated.”

David Thomson, chief executive of the Scottish Food & Drink Federation, highlighted the results from a survey of his members. “Sixty per cent of respondents to our survey were concerned about the proposal to increase the national living wage rate to £9 per hour by 2020 as it does not take into consideration inflation, interest rates or other economic forces.

“Members have also raised concerns at the speed of this increase and some will struggle with this, reporting that it may have a detrimental impact on jobs, permanent contracts and hours.”

Ranald Mair, chief executive of trade body Scottish Care, goes further. “There is a degree of hypocrisy on the part of government and councils talking up their commitment to the Scottish living wage, and paying it to their own staff, but not building it into the commissioning and funding of the externally purchased care being delivered on their behalf,” he says.

“Provider organisations would be very keen to see improved terms and conditions for staff if this was matched by the funding they receive.”

Macdonald Hotels & Resorts

Macdonald Hotels & Resorts operates 41 hotels throughout the UK, from Inverness to the New Forest in Hampshire. In total, the Bathgate-based hotel group employs around 3,500 people.

“We strongly support the principle of a national living wage and we have been planning and positioning our business for a couple of years with a view to introducing the living wage on a wider basis in the company, even before the UK Government announced its intention to introduce a national living wage for over 25 year olds from April,” explains Gordon Fraser, deputy chairman and group finance director.

“By investing more in training and standards, we ensure our people are aware of how memorable service directly affects the bottom line.

“We also spend a lot of time looking at how technology can improve sustainability practices and energy use within our hotels.

“Our strategy therefore, is to seek smart solutions to reduce costs, while ensuring guests get the best possible experience and are happy to pay for good value.

“Inevitably the increase in rate of pay to the living wage can only be paid for by a combination of a reduction in costs through efficiencies and improved productivity and through increased prices to our customers, but this of course applies to our whole industry.”

This article appears in the Spring 2016 edition of Vision Scotland. An online version can be read here. Further information about Vision Scotland here.