Osborne’s National Living Wage: Reward innovation or a restriction on reward practices?

Since the announcement of the new National Living Wage (NLW) during July’s Budget there have naturally been various opinions on the positive and negative effects on the UK economy, workforce and trade possibilities. What does not seem to have been addressed is how this will affect reward practices and how the fundamental changes could impact businesses, across all sectors.

So what is the NLW and how does it come into effect? In short it is a ‘top up’ or ‘premium’ on the National Minimum Wage (NMW) and will be available only to those aged over 25. The premium of 50p per hour, which first comes into effect in April 2016, will be added to the new NMW of £6.70 per hour, up from £6.50 p/h pre October 2015. This increase is the first in Osbourne’s grand plan for a NLW of £9 p/h by 2020.

Certainly this policy will pose differing obstacles with a varying complexity across a number of business sectors. Ultimately the NLW will increase the largest outgoing for almost every business – its workforce. This will further heighten risk for many of these companies that either have less liquidity or have high numbers of low income employees. Businesses in the Financial Services sector have already felt the cost of such growth in fixed costs through the changes imposed by CRDIV but sectors such as Retail and Leisure will have to adjust to the changes, with thousands of staff who will benefit from the NLW.

Within businesses costs are being monitored, if not scrutinised, further than before, with Reward leaders constantly being asked to provide a more cost efficient employee value proposition. Does the cost of the NLW take a slice of the pie from those leaders and restrict the total ‘pot’ for Total Reward packages, causing them to trim back on other key and desirable benefits in favour of a higher fixed pay element? Or does this allow the opportunity to find innovative solutions which could be more attractive to the company’s workforce? Are reward professionals able to invest in employee reward and engagement programmes or cash back and discount schemes with retailers?

Regardless, change should be seen as a positive. Reward must continue to evolve to help HR act as a more client facing function, as true business partners who really add the necessary business insights to enable the CEO and Leadership teams to strategically transform the company. How this evolution occurs within Reward is where the interesting changes will happen.

I would be keen to hear your thoughts as to how you are approaching this subject so please do feel free to get in touch.