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30th March 2020
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Success of National Living Wage depends on businesses raising their game on productivity
Ahead of the introduction of the new National Living Wage today, Charles Cotton, Performance & Reward Adviser at the CIPD, the professional body for HR and people development, comments:
"The introduction of the National Living Wage will increase the pay of millions of the UK's low-paid workers. Ultimately, though, it will only be judged a success if employers can sustain higher wages for the low-paid without the need for job losses and cuts to other pay and benefits. The NLW will increase costs for many businesses, particularly in the retail and hospitality sectors, which are set to be the hardest hit. But overall, more than half of employers in the UK said the changes will have an effect on their wage bill, according to CIPD research.
"With automatic enrolment still underway and next year's Apprenticeship Levy on the horizon for larger employers, the next eighteen months will be a tricky balancing act for businesses across all sectors.
"The key to sustainable increases in pay for the lowest-paid without damaging their job prospects is through raising productivity, and not the kind that comes from getting rid of people and making the rest work harder. There isn't a how-to guide for navigating through these payroll obstacles, but by improving productivity, organisations can keep the financial impact to a minimum and improve the long-term performance of their business. And increasing productivity works - among the 32% of employers that increased salaries by more than 2% in 2015, 28% were able to do so through productivity improvements, as our latest Labour Market Outlook found.
"However, many employers still seem to find it difficult to put productivity improvements into practice. When we interviewed employers about the new higher wage floor in November last year, three in 10 who said they'd be affected planned to raise productivity in response. But last month, just 12% had actually taken steps to do so (8% of small businesses).
"With employers more likely to absorb the cost of the increase, rather than pass it to consumers through higher prices, not doing anything could weaken businesses. Or it could mean that employees suffer through job losses, reduced hours, lower bonuses and little or no pay increase for those earning above the new minimum
"In order to really see a difference, organisations need to commit to reviewing their working practices and job design and ensuring employees have the best possible chance to be as productive as they can be in their roles.
"Employers need to bear in mind the Government's intention to increase the NLW above the inflation rate every year from now until 2020. So even if there's a fix for this year, it might not be enough for next year.
"The NLW is an opportunity for employers to examine performance, not necessarily by making people work harder, but work smarter, and also by designing jobs and work that provide challenges and opportunities available for employees to use their initiative and develop new skills."
1st April 2016