“The National Living Wage is Crippling Me – How Do I Manage It?”

National Living Wage

I have had several clients voice their concerns to me since my last article: ‘National Living Wage and the hospitality sector’ and the majority of these were from smaller businesses. This, combined with the fact that the government proposes to crack down on businesses that unfairly pay out tips, makes me wonder how businesses in the hospitality sector will manage and meet the pressures of the National Living Wage.

On 1 April 2016, the government introduced a new pay bracket known as the National Living Wage, which means individuals aged 25 and over are now entitled to a minimum wage of £7.20 per hour (a 50p increase). Although the majority of businesses are not heavily affected, the National Living Wage seems to have had a large impact on lower paid sectors, such as hospitality.
According to a report I read conducted by EY on the UK National Living Wage and the hospitality sector, 2/3 businesses in the field say that the changes to wages were “significant for their business”. With over 60% of hospitality businesses affected, I decided to delve in deeper on the situation. Through further reading, I found that since the implementation of the new wage, many businesses have been cutting back on recruitment plans and also staff benefits in order to cope with the increase.  Not only does this affect the morale of staff members, but it also creates bad press for many businesses.  What is more, the national living wage is said to be making employees less productive when comparing the UK to other European countries as UK salaries are far more desirable.

So what can be done for businesses that are struggling with the changes? There are several areas of improvement I believe that most businesses, especially smaller ones, can focus on:
Staff Retention: Although the law requires employers to pay employees the National Minimum Wage, there are other ways that businesses can retain staff besides money. Employing new members of staff tends to work out more expensive than keeping the ones you have

Consider:

  • Employee benefits: These do not have to cost the earth; one example is to contact local businesses and gyms to negotiate discounts for your employees.
  • Staff engagement processes: There are many ways you can better engage your employees. Job enrichment -redesigning job tasks – is a great way to motivate and encourage efficiency in your business.
  • Training: Show your employees you are invested in them by organising regular training on different aspects of the job.

Do something new: Innovation can be a great way to get revenue in to the business. Researching new processes, business ideas and marketing campaigns can be a great way to drum in new business. Perhaps your competitors are doing something you are not? Moreover, there are a several tax saving schemes and allowances you can claim if you decided to innovate.

Maximise productivity: A major perk of the increase to wages is that employers can use it as a way to increase productivity from staff. By slowly introducing more work, the increase to wages can end up being positive to the efficiency of your business.

Suppliers: Your supply chain has a massive impact on the amount you spend. Reviewing your suppliers annually can be a great way to cut costs as well as build relationships to negotiate better deals. What is more, the hospitality sector as a whole tends to be able to move suppliers more easily, giving businesses in the sector more power when negotiating.

Draw a range of cost scenarios: Perhaps your business model is not working. With the help of your accountant, you can draw up a range of scenarios to see how best you can arrange your business to help you fully maximise profits and utilise its potential.

If you would like to discuss any of these points in further detail or draw up a range of cost scenarios to help your businesses efficiency, please contact me directly at adam@raffingers.co.uk.
http://www.morningadvertiser.co.uk/Running-your-pub/Training/Living-wage-study-Higher-prices-and-cheaper-overheads-unsustainable
http://www.personneltoday.com/hr/covering-cost-national-living-wage-fair-legal-cut-back-perks/