Frontline director Tony Wilmot considers the impact of the Living Wage on both employees and employers.
There has been much noise about the imminent raising of the Living Wage. Whilst trade unions understandably consider the move a triumph, business owners are genuinely worried that their businesses will struggle to meet the new pay threshold.
Chancellor George Osborne has announced changes to the compulsory National Living Wage from April next year for workers over the age of 25. The initial rate will be £7.20 per hour, rising to £9 per hour by 2020.
Let’s look at some figures. Frontline Recruitment is headquarted in Nottingham, in the East Midlands. Some 451,000 people are paid less than the Living Wage in the East Midlands, according to new research published by KPMG. The figure indicates that 26 percent of all employees in the region earn less than the Living Wage – 3 percent more than the UK average of 23 percent.
The figure means that the East Midlands has the joint second highest proportion of workers earning below the Living Wage, alongside the West Midlands, Wales and Yorkshire and Humber. The highest proportion is found in Northern Ireland, with 29 percent.
The Living Wage outside of London is currently £7.85. The research, conducted by Markit for KPMG, shows that UK-wide the median wage is £11.61
Nationally, the figures show that part-time jobs are three times as likely to pay below the Living Wage as full-time roles. Despite accounting for less than one-third of all UK jobs, there are more part-time roles paying less than the Living Wage (3.205 million) than full-time jobs (2.623 million).
Implementing the new National Living Wage will add about 3 per cent to employers’ wage bills, according to a study by the University of Lincoln.
The analysis shows marked differences between the major industrial sectors. Jobs in retail, agriculture and health & social care will be among those most profoundly affected. Almost half of employees in the food and hospitality industry would see wages rise, with a percentage cost increase to employers of more than 10 per cent.
Whilst of course most people want to see workers be paid enough to live on, the raising of the Living Wage poses a conundrum.
Successive governments have long been criticised for the number of NEETs (not in education, employment or training) in the UK. When the Living Wage is introduced it will undoubtedly hit the bottom line of companies who employ people over 25.
There are mixed messages here. The government is rightly proud of the way it has brought unemployment down and employment up, but what will happen when businesses have to pay their over-25s the Living Wage? Will they stop taking on those over 25 and turn, instead, to those younger members of the workforce who are exempt from the Living Wage? Will this, in turn, lead to legal challenges from disgruntled over-25s who have been shown the door. What choice, in essence, do companies have if they want to remain profitable?
For business owners, the Living Wage looks like it will continue to ask more questions than it answers. Until we see who it actually benefits, then businesses have every right to be sceptical.