Hospitality and the Living Wage: How will the New Changes Affect the Sector?

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On 5 February 2016, the government publicly named and shamed 92 employers for failing to pay their employees the National Minimum Wage (NMW). With a large percentage of these companies ascending from the hospitality sector, how will the sector fair with the New Living Wage?

The introduction of ‘naming-and-shaming’ businesses for failing to pay employees the NMW came into effect in 2013.  As a result, the scheme has exposed over 500 companies and racked in a total of £3million in arrears, with penalties exceeding over £1.1million for those failing to comply. Last year, the government announced further changes to the law, which could mean more companies will be publicly shamed. Currently, the NMW rates stand at:

Year 21 and over 18 to 20 Under 18 Apprentice
2015/2016 (current rate) £6.70 £5.30 £3.87 £3.30
2014/2015 £6.50 £5.13 £3.79 £2.73

However, the government has announced plans to increase the NMW to £9.35 by 2020. To help the government achieve this, as of 1 April 2016 a new wage bracket will be introduced, making it mandatory for those over the age of 25 to receive a NMW of £7.20, an increase of 50p per hour. This is known as the National Living Wage (NLW).

MP, Nick Boles stated: ‘National Living Wage will mean a pay rise of over £900 a year for someone working full time on the minimum wage.” Therefore, it is thought that this change will reduce turnover rates and increase the productivity of workforces in the hospitality sector. However, according to a study conducted by M&C Allegra, 73% of respondents believe that the NLW will have a slightly negative or significantly negative effect on the sector. The reason being is that with higher wage bills, companies will either have to accept lower profits, reduce the number of their employees or reduce bonuses. There is also a concern that we may see companies favouring those under the age of 25.

Martin Couchman, Deputy Chief Executive of the British Hospitality Association stated, “Hospitality will be the biggest industry affected by this. A very substantial part of the workforce are paid the higher National Minimum Wage Rate and they are the ones who will be paid the compulsory National Living Wage… The introduction of the National Living Wage comes at a time when everyone is hoping that sector trading will start to recover from a subdued last 12 months. The Living Wage will now place significant pressure on companies in the hospitality space and could stunt profit growth for a few years.”

Failure for companies to comply with these changes may result in more ‘naming and shaming’, along with substantial penalties given out. Therefore, it is important that companies within the hospitality sector are aware of the changes and make plans to mitigate, as much as they can, any negative impact they can foresee. If you have any questions or would like advice on ways to reduce the impact of these changes on your business, please contact Adam Moody at adam@raffingers.co.uk.