National Living Wage for Small Employers

The National Living Wage

Today sees the introduction of the National Living Wage for over 25s who will receive an additional 50p for each hour they work.  There has been lots of coverage of this change on both sides of the argument, some suggesting it will put a squeeze on jobs others saying it’s a long overdue ‘leg up’ for the lowest paid members of the workforce throughout the country.

Where do I stand as a small business owner in the hospitably industry?

Mine is an industry which typically can see staff being paid low wages?

Looking at our workforce of around 28 people (it fluctuates a bit) 15 are eligible due to their age.  The hospitality industry often employs relatively young staff, especially in a town like Harrogate where a large percentage of young people will move away for university or to seek employment elsewhere.

Out of those 15 people 10 are already paid in excess of the National Living Wage and the remaining 5 were paid the National Living Wage since Jan 16.

The difference at Baltzersen’s and Norse is that I have never believed in discriminating against people by their age.  I actually don’t understand why, when the gender pay gap is under such a microscope in the media and by government, they are quite happy to legislate in a discriminatory fashion against the young.

Some of our team are under 18 and the law would allow me to pay them £3.87/hr; 47% less than their colleagues that are over 25 for potentially doing the same job.  18-20 year olds are entitled to £5.30 and 21-25 year olds £6.70.

Customers see a member of our team wearing the uniform and they don’t care whether the person is young, working part-time and paid much less than older full-time members of staff.  Take it from me they won’t be any more understanding of failures in service or cut them any slack for their youthfulness!  You are relying on that person to provide the same level of service as anyone else that works in the business, I think they should receive an equitable rate of pay.

I currently choose to pay everyone the minimum of £7.20/hr.

Why do I choose to do that?

The main reason is fairness.  I served in the Army before opening my business and looking after your people is an important part of that job.  I need to be able to look people in the eye and know I am doing right by them – perhaps I’m just soft!  It’s my choice.

I am not condemning businesses that do not follow suit, I’m in no place to do so.  I do understand that the government’s justification is that it creates opportunities for the young that would not otherwise be there – I think the apprentice framework also offers this and it’s something we’ve used before.  If a young person is learning a marketable skill, that is certified via college and transferable, whilst working then I think there is justification for lower pay that incentivises businesses to invest in new members of staff.

From a selfish point of view our rates of pay do mean we tend to attract and retain great people.  Many staff have worked for us during their time spent at sixth form then continue to pick up shifts during holidays whilst at university and have even then returned to work beyond graduation.  The low level of churn amongst our part-time staff is really helpful, because it can take a long time for someone to get up to speed if they are only working one shift a week.

How can we afford it?

Well, that is a more difficult question and something I’m addressing at the moment because it’s going to be a challenge.  When you take other pressures such as the requirement for auto-enrolling the team into pensions and funding matched contributions as well as the as yet unannounced increase to the National Living Wage for next year (set to rise to £9.00/hr by 2020) it will be tough.

I’ve heard a lot of comment on the radio about firms having two choices; make more efficiency savings to cover the increase to wage cost or let people go.  In reality there is a third choice; pass the increase on to customers.  There, I said it.  It’s not one that people want to mention but I think for most small businesses it’s the most likely option.  We aren’t usually operating at the lowest end of the market trying to be the cheapest option so I think we will have to rely on our teams to provide additional value through better service and overall experience thereby giving us room to increase prices and cover the increase.

There are perhaps other consequences that may be unintended, or otherwise.  For example one way to cut your wage bill is to target younger staff, it would also help to reduce youth unemployment.  It won’t be very helpful when it comes to offering people a career in hospitality if business models are based on constant churn of young staff to maintain wages below National Living Wage.

Summary

Increasing the minimum wage is a popular policy that it is very hard for any business or politician to take a position against, at least if they want to continue their career and protect their reputation.  It is a positive thing for those people at the bottom of the pay ladder who will be grateful for the extra money in their pocket.

It’s not necessarily a great thing for owners of small businesses; especially in industries that require a relatively large number of staff on wages around the National Living Wage and where margins are tight.  That being said we are forewarned so we have time to plan how we’re going to deal with that.

It might delay some businesses from taking the decision to employ their first member of staff.  It may cause other businesses to make cuts to their workforce  or change who/how they employ people, but arguably there are probably other underlying factors that are primarily driving this.

Consumers should expect prices to rise in order to cover increases to the cost of providing services, especially from independent businesses who do not have slack in the system where larger chains may be able to make efficiency savings.

I’m sure small independent businesses will be asking their employees to continue to deliver great service to help justify price increases to customers.

So that’s my two pence on the National Living Wage.  What are your thoughts?

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