National Living Wage: a challenge or an opportunity? (Guest blog)

The impending introduction of the National Living Wage (NLW) has prompted fears of thousands of job cuts and is forecast to cost the region’s employers an extra £2bn - or 3.7% of the current wage bill, according to a study by the University of Lincoln. 

Barry Warne, partner and head of employment at hlw Keeble Hawson, urges business owners to think long and hard before shedding workers and eroding their knowledge base during the biggest staff shortage and skills gap in recent history – and to welcome the new legislation as an opportunity to work smarter as opposed to harder.

Nowadays, companies do not simply compete for customers, but for the human resources to fulfil their orders in a highly predatory recruitment landscape. In these conditions, it is far better for companies to factor in the new wage bill without diminishing their most valuable assets - which can be achieved via improved working efficiencies and increased productivity.

The good news is that there is plenty of room for improvement: a major ONS study revealed that output per hour from UK workers in 2014 fell to 21 percentage points below the average of other leading industrialised nations and that for output per worker, the gap was 25% - despite the UK being the top G7 nation for employability.

With this in mind, a viable way to improve and economise is through changed employment terms and conditions, for example, hours worked and when they are worked. A flexitime system makes sense for a company that experiences highs and lows of activity, if it is organised so that people work during times of peak demand rather than being paid to sit around during slower periods.

In addition, moves to annualised hours contracts could become widespread, as they give managers greater control over working patterns and greater scope to maximise productivity and efficiency. The system sees an employee work a set number of hours over the whole year, but with a certain degree of flexibility about when they are worked. Core periods of regular hours or shifts typically form the basis of the arrangement, with the remaining unallocated time called in by the employer on an ‘as needed’ basis. Hours worked ahead of what would otherwise be normal are ‘banked’ and taken as time off in slacker periods, and vice versa.

These arrangements can reduce overall working hours and overtime, with great cost savings - particularly in organisations that need to run 24 hours a day, 365 days a year. However, for staff currently enjoying high overtime rates, annualised hours would not work to their advantage as they would greatly reduce overtime earnings.

This highlights the critical need for effective communication with employees, ahead of any proposed changes – be they different work patterns, evolving job descriptions, or reining in generous sick pay schemes. People don’t like change by nature, and changes that are either perceived to be or are genuinely disadvantageous to them will be greeted with even less enthusiasm, even if proposed changes will benefit employees or strengthen job security.

Consultation is key to getting staff to agree to the necessary changes.

Many employers lack the confidence to contemplate such changes – in the same way that they dislike instigating disciplinary procedures, even though they really ought to do so. Professional advice in introducing the new ways of working will be needed – along with support and guidance in implementing the changes themselves.

One company that has successfully embraced NLW and the sort of smart working that can minimise its impact is Trent Refractories of Scunthorpe. The manufacturer and supplier of bespoke refractory solutions which employs 13 people recently won the Living Wage Leadership Award 2015, Yorkshire region which celebrates individuals and organisations that have made a real difference to their industry or their community by supporting the Living Wage.

General Manager, Katy Moss, said: “By continually seeking cost and operating efficiencies, we have worked ‘lean’ for some time and most of our staff are already above the NLW starting rate as a result.

“A decent wage for hard-working people is the right thing to do and we have always been keen to provide this. It is definitely good for business too, as the ethical edge has allowed us to differentiate and raise our profile with customers and suppliers alike.”