5 tips to help business owners prepare for National Living Wage increase

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Posted in:Health Care, HR and Employment|February 10, 2016 | Join the mailing list

2016 is another year in which changes to employment law will have a big impact on businesses of all sizes.  After navigating numerous developments in recent years, including cases about working time, holiday pay and calculating the national minimum wage, April 2016 will bring with it the introduction of the National Living Wage (“NLW”)

The rate has already been announced and will be £7.20 per hour for workers aged 25 and over. It is tough for employers in this ever-changing business environment, where employee costs seem only ever to go up.  And we know that further NLW increases are planned, with the government already declaring the intention to increase the rate to £9.00 per hour by 2020.

Although April may seem quite far away, our advice is to start preparing well in advance (if you haven’t already) for how your organisation will manage the NLW’s introduction. Here are our 5 practical top tips:

Find out exactly what the impact of the changes will be on your organisation.  The NLW does not apply to all workers and the financial impact may not be as bad as you expect, or it may be easily managed.  Analyse the cost projections and how much needs to be saved – forewarned is forearmed!

Most people agree that the most important asset of any business is its staff.  Workers will have heard about the introduction of the NLW and the better you communicate with them about your plans and how it will affect them, the easier the process will be.  Remember, if you are seeking to amend employment contracts, in most cases it will be necessary to get your employees’ agreement to the alterations.

As far in advance as possible (to allow for planning and implementation) brainstorm and work out potential improvements to your organisational efficiency.  Would additional responsibilities for workers whose pay will be increased enable the organisation to get appropriate value for its investment?  Would relatively low expenditure on training, new processes, or new equipment result in efficiency savings? Would more atypical or flexible working assist? Can price increases or other funding options be explored?

This may come in the form of redundancies, but generally that is a last resort and other options may be available as alternatives, such as reducing pension contributions or other contractual benefits, reducing overtime or seeking volunteers to reduce hours.  If compulsory redundancies are inevitable, make sure you comply with your statutory obligations and plan a fair procedure in good time to ensure you do not place the organisation at risk of employment tribunal claims.

Expert advisers, like berg, will help you find solutions to any commercial headache, and your options for dealing with introduction off the NLW is no exception.  We work through the implications with you and use our experience to help you formulate a strategy, to take the business through what may be a difficult time.

We know from experience that an important practical issue is how to manage those supervisors and managers whose pay will not automatically rise when the NLW is introduced, but who will see other workers get significant pay increases, potentially each year until 2020.  Businesses facing this scenario need to plan for managing the process with all staff, as well as dealing with the impact on their finances, looking beyond the current financial year.

Our approach is always to share the best commercial ideas with everyone that seeks our advice.  If you have started planning for the introduction of the NLW, let us know how you plan to handle it.  If you haven’t started yet, we can help you from the first brainstorm to implementation, helping you to face a potentially difficult period in good shape.

For more information about any of the above or for practical commercial advice on this or any other aspect of employment law, please contact Michelle Gray or Kim Freeman-Smith of the berg Employment team on 0161 833 9211 or by email at michelleg@berg.co.uk or kimf@berg.co.uk.

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(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.)

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