The National Minimum Wage was introduced over 17 years ago and is now known as the National Living Wage. From 1 April 2017 workers aged 25 and over will be entitled to a payment of £7.50 per hour. This is a rise of 30 pence per hour from the current rate of £7.20 and the government expects the rate to rise to over £9 by 2020.
Almost 4.5 million people are employed in the UK in the hospitality industry, according to The British Hospitality Association (BHA), which is 10% of the total UK workforce.
Concerns have been raised within the industry about what the impact of this might be, understandably so within a labour intensive sector and one of the main concerns is the financial impact.
Payroll costs will increase as a result of the above and businesses in the hospitality industry will be particularly affected as, compared with other industries, it typically employs and is dependent on, a higher number of lower paid, lower skilled workers and those in temporary roles. This means they could face a detrimental impact on their businesses, due to the increased level of wage costs which are deducted from income. This is alongside the recent introduction of workplace pensions and auto enrolment.
What are the impacts likely to be?
From a business perspective there are concerns over how the increased rates will affect profitability, and therefore the knock-on effect on jobs and pricing.
Some businesses are likely to consider cutting hours for staff but considerations given to reducing head counts within the industry need to be weighed up against how the standard of service will be affected. There may be a reduction in overtime and bonus payments which could lead to low staff morale.
Other less scrupulous employers may try and save money by employing workers under 25 and there is a risk of discrimination within the industry against older workers. Employees entitled to the higher rates of pay may find themselves being replaced with younger, cheaper labour. Employers must be careful they are not in breach of the Equality Act during their recruitment process; this prevents applicants being less favourably treated than others on the grounds of age.
The effect is also likely to become more pronounced in forthcoming years as the increases are set to be above the rate of inflation.
The outlook is not all bad however. The rise in hourly rates is likely to have a positive effect on staff retention. A large proportion of workers in the industry are paid at the National Minimum Wage rate and the rise should therefore have positive consequences on staff morale. This along with training on customer service could demonstrate commitment to employees and encourage them to remain loyal to the business thus reducing the cost of sourcing and replacing staff.
The additional cost imposed on businesses is likely to trigger an efficiency drive and businesses should look at how productivity can be improved, via training for example.
A review of how the workforce is made up is an important exercise to complete, in order to ensure workers are being paid at the correct rates and are categorised correctly.
The increases to the rates are compulsory so employers need to think about how to manage these changes at the earliest opportunity and plan ahead in order to mitigate the impact on their businesses. Armstrong Watson is available to advise their clients and future clients on the forthcoming changes.
Contact us for more information on how the forthcoming changes could affect you and your business.
