Warnings over National Living Wage

MI Supplies team pic September 2016

The head of Stockton firm MI Supplies has spoken out after a workforce survey by the North East England Chamber of Commerce showed if the National Living Wage rises to £9 an hour by 2020 it will impact on employers’ recruitment decisions.

Findings showed most firms whose wage bill increased because of the National Living Wage (NLW) in April 2016 have not yet made major changes.

Paul Carbert, Chamber policy adviser, said: “The government needs to take an evidence-based approach when setting the NLW.

“We recommend the rate should be set by the Low Pay Commission and determined by the state of the economy, weighing up the various pressures businesses face.

“Further NLW increases need to be proportionate, reflecting business uncertainty, slowing growth and high input costs, to avoid having a negative effect on employment.”

Alex Ingham, managing director of MI Supplies, a Stockton-based workwear and clothing supplier, said: “We pay over the NLW and believe it is morally right do so. Our business also has a profit share scheme and other benefits such as gym membership which can be worth up to £1k a year.

“While the introduction of the NLW obviously did not impact directly on our salary bill, it did affect us through some suppliers who have passed on higher costs as a result of their need to increase wages.

“If the NLW does rise to £9 by 2020 that will have an effect on our business and it may mean we are unable to still offer all of our additional benefits. Another whole can of worms is the pay differentiation between workers who have various roles in a company.

“If the junior members of a team have an increase to £9, it is logical that their managers will need to have their salary increased proportionately to acknowledge the extra responsibility.

“These possible costs in 2020 could increase our wage bill by as much as 20% which will definitely start to impact on our bottom line.”

The survey of businesses showed that just under a third of companies (32%) have had to increase their wage bills since the introduction of the National Living Wage (NLW) in April 2016.

Key findings in the survey:

• Most businesses pay their staff above the NLW, but almost a third have increased their wage bills since it was introduced in April 2016
• Of the firms whose wage bill increased because of the NLW, most have not yet made major changes, but more of these firms expect to do so if the NLW rises to £9 by 2020
• Only 13% of businesses affected by the NLW raised prices to offset the cost, but 30% would do so if it rose to £9 by 2020
• Of the businesses affected by the introduction of the NLW, 12% reduced recruitment in response, 5% reduced staff hours, 7% reduced pay growth, 10% reduced staff benefits, 12% reduced recruitment, and 75% made no changes
• If the NLW increases to £9 per hour by 2020, 7% would reduce staff hours, 15% would reduce pay growth, 15% would reduce staff benefits, 16% would reduce recruitment, and 53% would make no changes

More than 1,600 business leaders across the UK responded to the survey, undertaken in August 2016.

Supported by Middlesex University, the results revealed that many companies affected by the introduction of the NLW have already changed their recruitment plans or planned to do so in the future.

More than 10% of affected firms have reduced recruitment in response, and 16% plan to do so if the NLW rises to £9 per hour by 2020. Others are looking at changes to staff hours, benefits or pay growth.

These changes reflect the rising cost burden on many companies. Although the majority (68%) of firms pay their staff above the NLW of £7.20 per hour and have not been affected, 26% of those that were affected have increased their wage bill slightly, and 6% have increased their wage bill significantly.

The businesses most exposed to the NLW have largely absorbed the increase in costs for now, but plan to pursue cost reduction measures if the NLW increases to £9 per hour.

• Pictured (above, left to right) is MI Supplies MD Alex Ingham with employees Callum Patton, Neil Hodgson and Sophie Tasker.

 

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