At our April event, a panel chaired by Simon Macpherson of Ceridian and comprising Andre Langlois of PwC and Dan Tomlinson of the Resolution Foundation explored: The National Living Wage: good for business?

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THE NATIONAL LIVING WAGE:
3 STEPS FOR SUCCESS
CERIDIAN UK | WHITEPAPER

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WHAT IS THE NATIONAL
LIVING WAGE?
In the summer of 2015 the government announced the introduction
of the National Living Wage (NLW), and on the 1st April 2016 it
became compulsory legislation for all UK employers to pay each of
their employees over the age of 25 a minimum rate of £7.20 per
hour.
The NLW rate was set by the Low Pay Commission, an
independent body that advises the UK government on the National
Minimum Wage (NMW) and NLW. As of 1st April 2016 the NLW
rate of £7.20 replaced the NMW which was £6.70.
The NLW should not be confused with the Living Wage (LW), which
many employers choose to pay via voluntary accreditation.
Accredited LW employers ensure their own staff and those of on-
site contractors working on their premises are paid at least LW
across the UK.
Set by the Living Wage Foundation, it is a rate calculated by the
Greater London Authority and the Centre for Research in Social
Policy at Loughborough University and currently stands at £9.40
per hour in London and £8.25 elsewhere.
With the Living Wage Employer Mark and Service Provider
Recognition Scheme providing an ethical badge for responsible
pay, LW has attracted over 2,000 accredited employers since 2011.

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THE NATIONAL LIVING WAGE’S EFFECT ON INDUSTRY
According to the Resolution Foundation, a non-partisan and award-winning think-tank
that conducts authoritative analytical research on living standards in the UK:
“Almost two million workers are expected to have their pay topped up to the
National Living Wage this year. For those currently on the minimum wage, it will
mean a pay rise of over 10 per cent – four times the average pay rise.
And the gains don’t end there, because minimum wage rises also create ripple
effects further up the pay ladder as employers seek to keep gaps between their
lowest-paid staff and those on the next rung up. We estimate that a further 2.6
million employees will benefit indirectly from the NLW, taking the total number of
beneficiaries to 4.5 million in 2016.
The biggest rise in the NLW will come this year, but what about its impact over
the parliament as a whole? As the chart below shows, Britain’s lowest earners
are set for several more years of above average pay rises. As a result by 2020
around six million workers will benefit from the NLW.”

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In a study conducted by the CIPD and the Resolution Foundation, the industry
sectors most affected by NLW were as follows:

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ACCOMODATING THE NATIONAL LIVING WAGE
It is difficult to argue that NLW is not good for the individual or for society in general,
and indeed very few have attempted to make such an argument. Perhaps what will
come as more of a surprise to some is the fact that numerous studies have shown
that paying a living wage also brings significant benefit to the employer. It was not
long after its announcement in the summer of 2015 before businesses began to
demonstrate their understanding that paying a living wage will actually help them:
 Attract and retain the best talent
 Improve staff morale
 Increase productivity
 Improve customer service
Employers quickly realised that these ingredients represent the perfect recipe for
increasing profits and market share, and many started to pay at or above NLW some
considerable time before they became legislatively obliged to do so.
However, the resulting business benefits are potentially only to be enjoyed by these
‘early birds’ in the short term before their competitors inevitably catch up. In this white
paper we discuss three important steps to help companies sustain the benefits of
paying a living wage and to accommodate the associated additional cost.
STEP 1: EMPOWER
Irrespective of industry sector, today’s workforce expects a higher standard of work-
life balance than previous generations, and they expect technology to play a key
part in delivering that balance. Direct access to cloud-based Human Capital
Management (HCM) solutions is quickly becoming the norm, empowering employees
to:
 Communicate the days and times they would prefer to work
 Get early visibility of the shifts they are scheduled to work
 Trade shifts with colleagues and volunteer for unfilled shifts
 Review their actual worked hours and get a preview of the associated pay
 Request time off and view associated balances e.g. holiday, lieu time etc.
In fact we have now reached a point where it is no longer acceptable to expect
employees to make their way to a computer in order to take advantage of such
functionality. With over 76% of adults in the UK owning a smartphone, employees
expect to take control of their work-life balance on the go using their chosen mobile
device.

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Where once a certain margin for error was expected and accepted, accurate pay for
time worked is now taken as a given. Employees expect effective technology to
capture this time along with their absence and performance, and they expect
colleagues exhibiting an unacceptable degree of diligence to be appropriately dealt
with by management.
Empowering employees to take greater control of their work-life balance not only
results in higher engagement (see step 2), but it crucially also drives down
unscheduled absence. If employees have more control over when they work then
they are far less likely to ‘pull a sickie’.
According to the CIPD 2015 Annual Absence survey, unscheduled absence across
all industries costs £554 per employee per year, with the average level of absence
being 6.9 days per employee per year. The survey suggests that 30% of
unscheduled absence is not genuine. Eliminate that 30% of false absence by using
effective HCM technology represents a potential saving of circa £165 per employee
per year – totalling in excess of £330k annually in a company with 2,000 employees.

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STEP 2: ENGAGE
There is no doubt that paying the NLW or indeed the LW will increase employee
engagement, and it is also undeniable that engaged employees generate better
customer service leading to greater quality and higher sales. Many studies have
already demonstrated this, dating back to the nineties when Sears first reviewed the
“Service Profit Chain”.
This was reviewed and re-published more recently in the Harvard Business Review
and the principles are clearly articulated in this graphic:
The positive impact of the fair treatment of employees and employees’ pride in an
ethical place to work results in:
 Improved levels of employee morale
 Enhanced quality of work
The LW has been also been shown to reduce absenteeism in the workplace. A study
dating back to 2012 by Jane Wills and Brian Linneker from Queen Mary University
concluded that the LW leads to reduced “sickness”. One employer surveyed by GLA
Economics reported that following the introduction of the LW for workers employed
through contractors, absenteeism fell by as much as 25%.

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It also means a positive impact on staff retention and an organisation’s reputation as
a good place to work, with obvious recruitment benefits. This is supported by a recent
report from Shareaction which suggests that the LW is ultimately good for
shareholders.
HCM technology further enhances engagement by ensuring employees are treated
fairly and consistently without the bias often resulting from manual systems and
processes, right through their employment from hire to retire. To optimise the
employee and manager experience, a single solution for recruitment, onboarding,
and performance through workforce management and payroll is key.
The monetary savings to be achieved by reducing employee turnover are significant.
Employee turnover is typically between 20 and 30% in the Retail and Hospitality
sectors, those sectors most widely affected by the NLW increase.
According to a report by Oxford Economics and Unum, that employee turnover
directly costs an average of £3,874 per employee. Add to this the cost associated
with the temporary loss of productivity and this figure can easily rise above £16k per
employee. If an organisation with 2,000 employees were to reduce their turnover by
just 5% by improving engagement through effective HCM, they can expect to save a
minimum of £387k and potentially up to £1.6m per year.
STEP 3: OPTIMISE
NLW can be a catalyst to improve efficiency and thereby bring about often needed
business process improvements. A widely quoted AMR study reports that it takes just
2.3 bad experiences for a customer to abandon a brand all together. Yet how often
are we frustrated by an insufficient number of sales advisors in a retail outlet or a
lengthy queue in the coffee shop due to a lack of skilled baristas? A 2011 study by
The Grocer concluded that the average Briton spends more than month of their life
queuing in supermarkets, yet we still often see far too many unmanned tills at busy
times. NLW can provide the business case to introduce HCM technology to align
staffing to customer demand, thereby improving customer service and driving greater
sales.
Operational efficiency on the front-line isn’t optional either. To remain competitive it
requires investment in systems to support staff in the execution of strategy at the
forefront of operations, on the shop-floor, coffee shop, hotel reception, room or bar.
Getting staff scheduling right is critical, now more than ever. Get it wrong and a
business is faced with frustrated customers who will walk away, and disengaged staff
who don’t care if they do!

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All too often organisations seem unable to predict with any degree of accuracy how
many staff will be needed at any given time. This is particularly noticeable in retail
and hospitality where customer service is paramount. Retailers cannot expect
customers to tolerate lengthy periods of queuing as they attempt to return items
purchased on-line with only two of six tills operating, when only yards away the on-
line collection tills are fully manned with not a customer in sight. Sound familiar?
The introduction of NLW has prompted many large retailers and hospitality
companies to commence predictable cost-cutting initiatives involving significant job
cuts, as they recognise the need for leaner, more efficient operations. The cuts thus
far appear to have been stripping out layers of management in favour of directly
compromising customer service. When it comes to staff on the front-line, where
customer experience is judged, there is much that can be done to achieve efficiency,
minimise job losses and pay NLW.
Effective Workforce Management (WFM) solutions as part of a wider HCM initiative
can improve efficiency by several percentage points by achieving ‘right people, right
place, right time’. This doesn’t just apply to retail and hospitality – the same is true in
other industries in the supply chain such as manufacturing, distribution and the
associated service companies.

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With a degree of organisational flexibility together with an effective WFM solution,
efficiency can be significantly improved whilst taking into account all the necessary
constraints:
 Variable labour demand
 Employee skills
 Employee preferences and availability
 Legislation
 Contractual terms and conditions
Just a 6% efficiency improvement has the potential to deliver a £1.4m annual saving
to an organisation with 2,000 employees. This saving alone would come very close to
funding the total annual cost of NLW for such a business, but the positive financial
impact doesn’t end there. The improvements in customer service achieved by using
WFM to align staffing to business demand.
IN CONCLUSION
Over 2,300 organisations are already voluntarily paying their employees above NLW
and are enjoying the reputational and business benefits it undoubtedly brings. Almost
weekly one hears of another organisation choosing to pay above NLW or to pay NLW
to all employees regardless of age.
Deploying holistic HCM technology to empower, engage and optimise your
workforce and accommodate the increased cost of doing business will provide
competitive advantage over those that choose not to. Can you afford not to be one of
them?
Find out more about how deploying Ceridian’s HCM solutions can enable you to
accommodate the increasing cost and enjoy the benefits the Living Wage will bring to
your organisation.
ABOUT CERIDIAN
Ceridian is a global human capital management technology company serving over 25 million users in more than
50 countries.. Ceridian. Makes Work Life Better™ For more information about Ceridian solutions call 0800 0482
737 or visit www.ceridian.co.uk.
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