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Comment: retailers under pressure from National Living Wage

Monday March 14th 2016

The UK Government is introducing a 'National Living wage' from 1 April 2016. The Chancellor, George Osborne, has claimed that the policy will help bring Britain out of its “low-pay, low-productivity trap”, but some have suggested that it will cost the sector jobs. By Gavin Matthews, Bond Dickinson.

The new national living wage is due to come into effect on 1 April 2016. This will mean that workers aged 25 and over will receive an additional premium on top of the national minimum wage which will result in a national living wage for those workers of £7.20 an hour. By 2020 it will rise to £9 an hour.

It has been estimated that around 50% of employers will need to increase pay for some employees as a result of this change. Such employers will need to plan ahead and decide how they will deal with the increase in wage costs. On the same date, penalties for a failure to pay the national minimum wage or living wage will double and company directors can be disqualified for failing to pay the correct amount.

The independent campaign group the Living Wage Foundation have long campaigned for a living wage. When doing so they highlight that as well as benefiting employees, there are numerous advantages for employers who sign up to their living wage policy.

First, they claim that it is good for business: in an independent study the Foundation found that over 80% of employers who had implemented the living wage had seen an improvement in the quality of work their staff produced. Secondly, those employers that have already implemented the scheme reported employee absenteeism down by a quarter.

The Foundation also states that more than two thirds (70%) of employers believe that the living wage policy has improved the face of their organisation in the eyes of the consumer, bolstering their image as an ethical employer.

However, it is clear that the retail sector remains cautious about the economic recovery. The latest BRC-Bond Dickinson Retail Employment Monitor (Q4 2015) revealed that retailers’ employment intentions for the next three months are more pessimistic than for the same period last year. This reflects a variety of challenges facing the sector including the introduction of the national living wage and concerns over the cost of the Apprenticeship Levy being introduced in April 2017.

A BRC study last week highlighted this further, warning that together these effects could mean there are as many as 900,000 fewer jobs in retail by 2025. The retail sector employs about 3 million people – but of the 270,000 shops in the UK, up to 74,000 could shut. Nearly 30% of these could be in Wales and the north of England, according to the report.

It is clear that retailers are nervous about laws that will create additional labour costs. Businesses should be prepared for the National Living Wage by now but if they aren’t, they should act quickly to ensure they are compliant, and that the financial impact of the changes are understood.