Expedite The Living Wage: Good for Business?

#Makesworklifebetter

The Living Wage: Good for business?

John Harding

PWC

Dan Tomlinson

Resolution

Foundation

Anthony Lawrence

WH Smith

Panel Discussion

Simon Macpherson

Ceridian


National Living Wage announced

The adult NMW rate is

currently £6.70. From 1st

April 2016 the premium will

come into effect on top of

the NMW, taking the

National Living Wage to

£7.20.


1. For many, greater than 7% rise in wage costs

2. £800 to £1,040 annually per FTE

3. Potentially increased selling price to maintain margins

4. Competitive disadvantage if your competitors figure out

how to accommodate without increasing prices

For your organisation?


Reaction to announcement


22 Days later


Cascades through many organisations

The National Living Wage:

How will employers respond?

Conor D’Arcy

March 2016

@conortdarcy / @resfoundation

[email protected]

The NLW is a big step up in ambition for the UK’s wage floor so impacts are hard to predict

Likely to present challenges for (some) firms, especially by 2020

Impacts will vary by:

• industry

• firm size

• public/private sector

• We focus on industry and two metrics:

• proportion of staff affected (23% nationally)

• proportional impact on wage bill (0.6% nationally)

NB: Not predictions – but indicators of where the most pressure is likely to be felt

Coverage is set to be highest in hospitality, support services and retail

Wage bill increases should be below 1% in most industries but substantially higher in a minority

Research on the NMW’s impact suggests it raised pay without job losses – what did employers do instead?

• Reduced pay gaps between low-paid and better-paid workers

• Cut non-wage benefits and hours, though not enough to offset the upsides

• Pushed up prices (slightly) in sectors like fast food, canteens and hotels

• Squeezed profits, though with no identifiable effect on the rate of business failure

• Boosted productivity in low-paying sectors, particularly in large firms

12

Recent Resolution Foundation research exploring how employers plan to respond to the NLW

• Joint RF-CIPD survey of 1,037 employers of different sizes and sectors

• To better understand decision-making, in-depth interviews with employers, primarily in the most-affected sectors

The most common response (30%) was to raise productivity or efficiency

Interviews with employers revealed a variety of ideas for achieving this:

• Workforce planning/rostering

• Fewer ZHC staff

• Development ladders

• Time and motion study

• But some employers, particularly SMEs, had few ideas how to achieve this while others were pessimistic about the potential for any gains

The next most common was to absorb the costs by reducing profits (22%)

• The default approach for some with the rise to £7.20 seen as affordable (esp. for high-performing firms), with potential shifts in their business model in the long run

• Others taking a “wait and see” approach, monitoring how competitors react with lower profits for now

• A quarter of organisations didn’t yet know how they would react

Cost of passing on full increase to higher-paid staff meant some squeezing of differentials

• “We’ve only really done what we needed to do in terms of the NMW increases. That means that now our wage structure is not so much a structure, more of a wage”

• Started from position of passing full increase on but not affordable

• Existing hard-to-fill roles so limited ability to squeeze further

A variety of other responses are on employers’ minds

• Raise prices (15%)

• Some feel they have space to do so, while others fear pricing themselves out

• Business model an important determinant

• Cut jobs (15%) or hours (9%)

• Most intended to keep staff, some would increase use of ZHCs

• Age rates (8%)

• Concerns around fairness but may change closer to £9

While the NLW should be affordable for most employers, clear need for action on some issues

• As with the NMW, employers don’t want to just cut jobs and so are considering a variety of options

• Appetite for productivity gains is welcome but questions over how to achieve it

• Role for government in supporting organisations to do so

• Effective enforcement is crucial for credibility

• Impact on recruitment, retention and progression

18

www.pwc.com

What does 2016 have in store for employment costs and risks?

André LangloisReward and Employment

[email protected]. 07703 563 688

mailto:[email protected]

PwC

Costs by sector

Retail

Healthcare

Hospitality& Leisure

£2m

£2m

£4m

£13m

20202016

£14m

£26m

x 6.5

2020vs

2016

x 7

x 6.5

Source: PwC NLW Survey 2015

* All participants

PwC

The National Living WageCosts for large employers


* Companies with headcount in excess of 5,000

PwC 22

Average total increase to wage bill

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2016 2017 2018 2019 2020

Self-assessed cost PwC's cost estimate

The National Living WageUnderestimating the costs


All participants

PwC

The National Living WageTop actions identified by employers


All participants

PwC

The National Living WageResponses

BudgetersCut back to mitigate costs in theshort- to mid-term.

DeniersDo nothing. It’s a statutory change thatcan’t be helped, and it probably won’t havemuch impact.

AdaptersGo above and beyond, think outside the box,see the wider impact and opportunities.

PwC

Total impact

Pay Governance Cost ModellerCompany parameters Cost increase 2016 2017 2018 2019 2020

Headcount (FTE) 3,304 The National Living Wage £1.8m £3.7m £5.7m £7.6m £9.6m

Average weekly hours 35 National Insurance £0.7m £1.3m £1.8m £2.4m £3.0m

Staff at/below NLW 60% Pension Auto Enrolment £0.0m £0.1m £0.9m £1.8m £1.8m

Average pay ph below NLW £6.70 Holiday Pay £1.5m £1.5m £1.6m £1.6m £1.7m

Average pay pa above NLW £35,000 Apprenticeship Levy £0.0m £0.4m £0.4m £0.4m £0.4m

Average annual pay increase for non-NLW staff 2% Gender Pay Gap* £1.1m £2.1m £3.2m £4.3m £5.3m

Total Annual Pay Bill pre NLW £70.4m Loss of salary sacrifice savings £0.0m £0.0m £0.0m £0.1m £0.1m

Population in pensions salary sacrifice 60% Total additional spend compared to 2015 £5.1m £9.1m £13.6m £18.1m £21.9m

AE earnings above QE threshold 50% Each column shows the increased cost in that year compared to 2015

Percentage of workforce female 70%

Other parameters Cost increase as percentage of payroll 2016 2017 2018 2019 2020

Industry: Percentage of 2015 Annual Pay Bill 7.2% 12.9% 19.3% 25.7% 31.0%

Mean gender pay gap 42% Cumulative cost compared to pre-NLW annual wage bill 7.2% 20.2% 39.4% 65.2% 96.2%

Reduce gender pay gap by: 25% Shows the cumulative cost increase compared to if 2015 costs were consistent through to 2020

Holiday pay assumption 2.0%

PwC

Tax and regulatory compliance

Employee engagement

Internal processes

HR policies

Robust controls

Na

tio

na

l M

inim

um

W

ag

e

Th

e r

igh

t to

wo

rk

in

th

e

UK

Ap

pr

en

tic

e L

ev

y

Au

to r

e-e

nr

olm

en

t

Ho

lid

ay

pa

y

Eq

ua

l a

nd

Ge

nd

er

pa

y

Na

tio

na

l L

ivin

g W

ag

e

Brand and reputationActions?

• Impact assessment –costs, risks, operations

• Principles and strategy

• Implementation plan(e.g. Holiday Pay, National Living Wage, Equal Pay etc.)

PwC

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty

(express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, [insert legal name of the PwC firm], its members, employees and agents do not accept or assume any liability, responsibility or duty of

care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

Expedite The Living Wage: Good for Business?

Recruiting & HR

Transcript of Expedite The Living Wage: Good for Business?