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?
1. #Makesworklifebetter
The Living Wage: Good for business?
John Harding
PWC
Dan Tomlinson
Resolution
Foundation
Anthony Lawrence
WH Smith
Panel Discussion
Simon Macpherson
Ceridian
2. #Makesworklifebetter
National Living Wage announced
The adult NMW rate is
currently £6.70. From 1st
April 2016 the premium will
come into effect on top of
the NMW, taking the
National Living Wage to
£7.20.
3. #Makesworklifebetter
1. For many, greater than 7% rise in wage costs
2. £800 to £1,040 annually per FTE
3. Potentially increased selling price to maintain margins
4. Competitive disadvantage if your competitors figure out
how to accommodate without increasing prices
For your organisation?
7. The National Living Wage:
How will employers respond?
Conor D’Arcy
March 2016
@conortdarcy / @resfoundation
conor.darcy@resolutionfoundation.org
8. The NLW is a big step up in ambition for the UK’s wage floor so impacts
are hard to predict
9. Likely to present challenges for (some) firms, especially by 2020
Impacts will vary by:
• industry
• firm size
• public/private sector
• We focus on industry and two metrics:
• proportion of staff affected (23% nationally)
• proportional impact on wage bill (0.6% nationally)
NB: Not predictions – but indicators of where the most pressure is likely
to be felt
10. Coverage is set to be highest in hospitality, support services and retail
11. Wage bill increases should be below 1% in most industries but
substantially higher in a minority
12. Research on the NMW’s impact suggests it raised pay without
job losses – what did employers do instead?
• Reduced pay gaps between low-paid and better-paid workers
• Cut non-wage benefits and hours, though not enough to offset the
upsides
• Pushed up prices (slightly) in sectors like fast food, canteens and
hotels
• Squeezed profits, though with no identifiable effect on the rate of
business failure
• Boosted productivity in low-paying sectors, particularly in large firms
12
13. Recent Resolution Foundation research exploring how employers plan
to respond to the NLW
• Joint RF-CIPD survey of 1,037 employers of different sizes and
sectors
• To better understand decision-making, in-depth interviews
with employers, primarily in the most-affected sectors
14. The most common response (30%) was to raise productivity or
efficiency
Interviews with employers revealed a variety of ideas for achieving this:
• Workforce planning/rostering
• Fewer ZHC staff
• Development ladders
• Time and motion study
• But some employers, particularly SMEs, had few ideas how to
achieve this while others were pessimistic about the potential for any
gains
15. The next most common was to absorb the costs by reducing profits (22%)
• The default approach for some with the rise to £7.20 seen as
affordable (esp. for high-performing firms), with potential
shifts in their business model in the long run
• Others taking a “wait and see” approach, monitoring how
competitors react with lower profits for now
• A quarter of organisations didn’t yet know how they would
react
16. Cost of passing on full increase to higher-paid staff meant some
squeezing of differentials
• “We’ve only really done what we needed to do in terms of
the NMW increases.That means that now our wage
structure is not so much a structure, more of a wage”
• Started from position of passing full increase on but not
affordable
• Existing hard-to-fill roles so limited ability to squeeze
further
17. A variety of other responses are on employers’ minds
• Raise prices (15%)
• Some feel they have space to do so, while others fear
pricing themselves out
• Business model an important determinant
• Cut jobs (15%) or hours (9%)
• Most intended to keep staff, some would increase use of
ZHCs
• Age rates (8%)
• Concerns around fairness but may change closer to £9
18. While the NLW should be affordable for most employers, clear need for
action on some issues
• As with the NMW, employers don’t want to just cut jobs and
so are considering a variety of options
• Appetite for productivity gains is welcome but questions
over how to achieve it
• Role for government in supporting organisations to do so
• Effective enforcement is crucial for credibility
• Impact on recruitment, retention and progression
18
19. www.pwc.com
What does 2016 have in store for
employment costs and risks?
André Langlois
Reward and Employment
andre.r.langlois@uk.pwc.com
Tel. 07703 563 688
21. PwC
The National Living Wage
Costs for large employers
Source: PwC NLW Survey 2015
* Companies with headcount in excess of 5,000
22. PwC 22
Average total increase to wage bill
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2016 2017 2018 2019 2020
Self-assessed cost PwC's cost estimate
The National Living Wage
Underestimating the costs
Source: PwC NLW Survey 2016
All participants
23. PwC
The National Living Wage
Top actions identified by employers
Source: PwC NLW Survey 2016
All participants
24. PwC
The National Living Wage
Responses
Budgeters
Cut back to mitigate costs in the
short- to mid-term.
Deniers
Do nothing. It’s a statutory change that
can’t be helped, and it probably won’t have
much impact.
Adapters
Go above and beyond, think outside the box,
see the wider impact and opportunities.
25. PwC
Total impact
Pay Governance Cost Modeller
Company parameters Cost increase 2016 2017 2018 2019 2020
Headcount (FTE) 3,304 The National Living Wage £1.8m £3.7m £5.7m £7.6m £9.6m
Average weekly hours 35 National Insurance £0.7m £1.3m £1.8m £2.4m £3.0m
Staff at/below NLW 60% Pension Auto Enrolment £0.0m £0.1m £0.9m £1.8m £1.8m
Average pay ph below NLW £6.70 Holiday Pay £1.5m £1.5m £1.6m £1.6m £1.7m
Average pay pa above NLW £35,000 Apprenticeship Levy £0.0m £0.4m £0.4m £0.4m £0.4m
Average annual pay increase for non-NLW staff 2% Gender Pay Gap* £1.1m £2.1m £3.2m £4.3m £5.3m
Total Annual Pay Bill pre NLW £70.4m Loss of salary sacrifice savings £0.0m £0.0m £0.0m £0.1m £0.1m
Population in pensions salary sacrifice 60% Total additional spend compared to 2015 £5.1m £9.1m £13.6m £18.1m £21.9m
AE earnings above QE threshold 50% Each column shows the increased cost in that year compared to 2015
Percentage of workforce female 70%
Other parameters Cost increase as percentage of payroll 2016 2017 2018 2019 2020
Industry: Percentage of 2015 Annual Pay Bill 7.2% 12.9% 19.3% 25.7% 31.0%
Mean gender pay gap 42% Cumulative cost compared to pre-NLW annual wage bill 7.2% 20.2% 39.4% 65.2% 96.2%
Reduce gender pay gap by: 25% Shows the cumulative cost increase compared to if 2015 costs were consistent through to 2020
Holiday pay assumption 2.0%
26. PwC
Tax and regulatory compliance
Employee engagement
Internal processes
HR policies
Robust controls
NationalMinimum
Wage
Therighttoworkinthe
UK
ApprenticeLevy
Autore-enrolment
Holidaypay
EqualandGenderpay
NationalLivingWage
Brand and reputationActions?
• Impact assessment –
costs, risks, operations
• Principles and
strategy
• Implementation plan
(e.g. Holiday Pay,
National Living Wage,
Equal Pay etc.)
Apprenticeship levy
New measures announced in the Summer Budget in relation to apprenticeships.
A levy will be introduced during the life of this Parliament on large UK employers to support all post-16 apprenticeships in England.
Businesses will be consulted on the implementation of this measure. The intention is that businesses who train apprentices may be able to receive more money than they contribute through the levy.
For apprentices employed who are under the age of 25, from 6 April 2016 employers may no longer have to pay employer Class 1 NICs on their earnings up to the new Apprentice Upper Secondary Threshold (aligned with the Upper Secondary Threshold for the tax year beginning 6 April 2016).