The National Living Wage has been greeted with alarm by many, as was the National Minimum Wage before it. But is it only a problem or could it be an opportunity?
There is no doubt that the National Living Wage could present a problem, especially in sectors that rely on government funding. The care sector provides an example of this as the services provided are very labour intensive and flexibility is limited. However, for many commercial employers this is an opportunity to re-examine how the business is delivered.
What is the National Living Wage?
The National Living Wage is in effect a new band of the National Minimum Wage that applies to employees who are aged 25 or over.
It comes into effect from the first pay period in April, not from April 6th, when employees over the age of 25 must be paid a minimum of £7.20 per hour.
The minimum hourly wage rate for 21 to 24 year olds (£6.70), 18 to 20 year olds (£5.30), young person rate for 16 to 17 year olds (£3.87) and apprentices (£3.30) will remain unchanged until October 2016.
In checking your compliance you need to remember that things like tips, overtime or shift premiums or unsocial hours allowances do not count towards the National Living Wage.
The Positive Approach
The positive approach to the National Living Wage is for businesses to get a higher return on each hour of labour, that is increased productivity. Achieving this goal will be different for each sector and possibly each business within that sector, but some areas worth examining could be:
Workflow – how work is done often develops haphazardly over time rather than being the result of careful thought. A detailed review of how your business works may reveal how, with your current team, you could deliver more to your customers.
Management – even if your workflows are optimised a lack of management can mean that the optimum performance is not being achieved. For example, an employee may not be following the right processes; perhaps they have not received the right training, or they have misunderstood the directions that they have been given. An alert manager will spot these problems.
Technology – we have seen a revolution in the use of technology in all aspects of business. However, it is always worth re-examining whether you are using technology to the fullest. The benefits of technology may not just be at the front of the business. For example, with a better stock control system you could reduce your stock and still deliver good customer service. In this way technology can reduce your costs, meaning that the National Living Wage will not impact your profitability.
Skills – is it possible that by increasing the skills of your employees you can increase the value that you provide to your customers? By training employees to deliver a greater range of services to a customer (or to be able to handle more jobs at a time), you may be able to reduce your overheads and direct your resources more effectively.
Opening Hours – when even a major supermarket reduces its opening hours, you need to ask yourself, do your current business hours make sense?
How you manage your staff can also significantly impact your costs:
Overtime – often patterns of overtime develop to meet a specific need and never change. It is worth examining from time to time whether your current overtime pattern is appropriate and cost-effective.
Absence – if you are having to pay overtime or pay for temporary staff to cover gaps then you need to manage absence. Research clearly shows that if the proper attention is paid to managing absence then short term absence in particular can be reduced.
Staff Attrition – retaining staff has several significant benefits, including saving management time, the cost of recruitment and reducing training costs. It’s also worth bearing in mind that experienced staff normally provide clients with a better service.
The first step in reducing staff attrition is to analyse how many employees have left and the reasons why. Try to avoid putting them all down to ‘more pay’, as something made these employees look outside of your organisation for that job.
In summary, the National Living Wage will have an impact on you. But by using this event as an opportunity to carefully examine your business you may just find that you can gain much more than you lose.