Monthly Archives: April 2016

How to make a parachute (tips on getting the most out of the National Living Wage)

Few employers will relish the prospect of an increased wage bill this month, owing to the implementation of the National Living Wage.  An additional 50p an hour for workers aged 25 and over will be a significant increase for businesses who pay the minimum wage and have some 25 plus workers in their organisation.

But is it possible for employers to make a virtue of this sort of necessity or is it more a case of not being able to make a silk purse out of a sow’s ear?  Can employers still distinguish themselves in terms of how they deal with the National Living Wage, even if they are paying the same basic amount?

Here are a few tips to help employers make the best of it:

  • Make sure you understand the legal requirement. As well as the new rate of pay, make sure you are clear about what can and can’t be taken into account in calculating the worker’s minimum wage.  For example, tips and gratuities cannot form part of a worker’s hourly pay rate, whether they are paid through payroll or direct from customer to worker.  Make sure you also understand what time is working time, for which the minimum wage must be paid.  There is new BIS Guidance to help with this.
  • Be upfront about the increase in pay. Employees are legally entitled to written confirmation of a change to their pay rate, at the earliest opportunity and at least within a month of the change taking effect.  Why not use this as an opportunity for positive communication with the relevant employees?  It will still be good news to them, even though it is mandatory.
  • Don’t shoot from the hip. There has already been negative media coverage and allegations of some big businesses, such as Café Nero and B&Q, responding to the increase by cutting other staff benefits.  Although changes might be necessary in the future, depending on the size of business and the increased wage bill, that sort of immediate response is at best likely to fuel distrust and cynicism within your workforce and at worst result in legal claims against you.  Changes to terms and conditions cannot be made without the employee’s agreement unless there is a dismissal and offer of re-engagement on the new terms, which in itself opens up the possibility of unfair dismissal claims whether or not the offer of re-engagement is accepted.
  • Don’t seek to recruit workers below the age of 25 in order to avoid paying the National Living Wage or avoid giving older zero-hours workers the same amount of work. This may expose you to claims of age discrimination.
  • Consider the possibility of some team-building (whether through a work social event or simply catch-up meetings with employees or the workforce as a whole). This should enable you to maximise the positive effect of the pay rise for those benefiting from it, in terms of staff loyalty, morale and effective working, and help smooth out any niggles or resentment from other staff members.
  • Take time to reflect. As well as avoiding knee-jerk reactions to the change, take time to consider possible reactions from other quarters and be prepared to address concerns.  For example, be aware that more senior employees in supervisory or managerial roles may have seen the pay gap between them and members of their team reduce as a result of the National Living Wage.

As in all aspects of employment law, the way an employer responds to a mandatory requirement can differ, with different consequences.  Whilst all employers whose workers are 25 or over have to pay them at least £7.20 an hour, an employer who deals with the National Living Wage in a positive way may be able to navigate a softer landing when they arrive at that destination, even if their parachute is not made of silk.

Claire Collinge
Partner, Workwise Legal