Now the National Living Wage is here, what’s next for employers?

Earlier this month, the National Living Wage replaced the National Minimum Wage for employees over 25 years old in the UK workforce. As a result many will see their pay packets rise by up to 50p for every hour they work.

This compulsory rise in pay has a number of employers reviewing their staff levels, work processes and overall structure.

CIPD research found that 54% of employers believed that the National Living Wage would affect their pay bill. 18% of all employers said they would be affected to a “large extent”.

Sectors where a high proportion of staff were historically paid the National Minimum Wage are likely to feel a higher impact than others. For example, according to the National Care Forum, in the social care industry, 11.5% of workers are under 25 years old meaning over 80% of staff will be subject to the new minimum hourly rate.

It’s important to note research found that SME’s appeared to be “less well informed” about the National Living Wage, also there was a lack of awareness to the options available to them to manage the new legislation. Compared with large organisations, where companies may have dedicated resources to HR and finance, SME business owners tend to hold multiple roles, leaving less time to dedicate to research and review of strategy and processes. This may result in a greater impact in the short term.

Now that the legislation is in place, how can SME businesses manage this change effectively?

Improving performance management

30% of businesses surveyed planned to raise the productivity of their workforce to help manage this change. CIPD research said “rather than any explicit change to practices or training, some employers made the case for their pay and rewards strategy as a tool both to boost employee morale, performances and as a result, productivity.”

Reviewing and updating your business strategies and policies to empower your employees in their roles can help increase motivation and help them to feel valued. This can have a positive effect on their individual productivity and business output as a whole.

Mike Wade, Finance Director at Hodgson Sayers says “A properly rewarded employee feels better about themselves. If you pay someone the minimum wage, they might think “I’ll do the minimum.” It’s set at a base rate rather than lifting people up.”

Refining recruitment & retention

Now that the National Living Wage has been introduced, the change in the adult threshold has increased from 21 years to 25 years. Some businesses, may prefer to employ staff under 25 to minimise the impact of the pay increase. However, fewer than one in ten said they would move forward in this way due to the importance of experience in the workforce.

This doesn’t mean that businesses shouldn’t look to develop their recruitment practices to help improve the quality of candidates joining the business and the ability to retain them in the long term.

Redundancies & reduced headcount

A survey by Price-Waterhouse-Coopers (PwC) found that 26% of businesses would reduce their headcount in response to the pay increase. Facing the difficult decision to reduce staff can be an upsetting prospect for both the employer and employees. It’s important to understand the complete process that will be undertaken before taking action.

For more information on the National Living Wage, download our free guide or find out how Citation can help here.