Getting ready for a higher wage floor

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Post on 13-Feb-2017



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<p>PowerPoint Presentation</p> <p>Getting ready for a higher wage floor Tackling Britains low pay and productivity challenge</p> <p>Faisal Islam, Sky NewsDavid Norgrove, Low Pay CommissionCharlie Mayfield, UKCESRebecca Riley, NIESRAbigail McKnight, LSEMatthew Whittaker, Resolution Foundation </p> <p>#livingwage / @resfoundation</p> <p>Taking Up The FloorExploring the impact of the NLW on employersMatt WhittakerSeptember 2015@mattwhittakerRF2</p> <p>3A quick recap</p> <p>Measuring the impact on employers</p> <p>Working towards successful implementation</p> <p>Taking Up The Floor</p> <p>A (very) quick recap of what it is &amp; who gets it4</p> <p>5National Minimum Wage (NMW) compulsory (adult rate covers all 21+)level recommended by LPC (raise pay in affordable way)</p> <p>Living Wagesvoluntary (campaign based)needs-based principle (raise pay to boost living standards)</p> <p>National living wage (NLW)compulsory top-up to NMW from April 2016 (for 25+)rate based on bite not cash level</p> <p>A quick reminder of what the NLW is (and isnt)</p> <p>6The NLW will raise the wage floor for 25+ employees by 50p initially </p> <p>From April, NLW will be 7.20, representing a 50p supplement on the NMW</p> <p>Set as 55% bite of median 25+ wage, but is roughly equivalent to 60% bite across all employees</p> <p>Around 1 short of predicted Living Wage outside London</p> <p>7With this premium potentially topping 1 by the end of the decade</p> <p>By 2020, NLW bite rises to 60% of median 25+ wage, raising the NMW supplement to around 1</p> <p>Goes significantly further than the Bain recommendation</p> <p>But remains around 1 short of predicted Living Wage outside London </p> <p>3.2 million directly affectedbrought up to (or above) the new wage floor</p> <p>2.8 million indirectly affectedalready earn above NLW, but gain from spillover effects as employers retain pay gaps between employees</p> <p>Average individual gross wage gain of 760 higher for the directly affected</p> <p>Average household net income gain of 410reduced by taxes and by loss of benefits for some8With around one-in-four employees expected to have their pay boosted by 2020</p> <p>Measuring the potential impact on employers9</p> <p>Impacts will varyindustryfirm sizepublic/private sector </p> <p>Focus on three metricsproportion of staff affected (23% nationally)bite relative to median (65% nationally)proportional impact on wage bill (0.6% nationally)</p> <p>NB: Not predictions but indicators of where the most pressure is likely to be felt10The magnitude of the change especially by 2020 is likely to raise new challenges for (some) firms</p> <p>11Coverage is set to be highest in hospitality, support services and retail</p> <p>Close to half of all employees in the hospitality industry stand to be affected</p> <p>Between one-third and two-fifths in a handful of other sectors</p> <p>Much lower coverage in higher paying sectors such as finance</p> <p>12Bite already varies very significantly and is set to approach (or pass) 100% in some industries</p> <p>A bite above 100% implies that at least half the workforce (including the under-25s) will be earning at or below the NLW</p> <p>High bites are already evident in a number of lower paying industries under the NMW</p> <p>13Wage bill increases will be below 1% in most industries, but significantly higher in a minority of cases</p> <p>2020 impact looks more challenging than 2016. Boost of 4.5bn is 0.6% of projected 2020 wage bill</p> <p>Set to be much higher in some industries</p> <p>But impact will also depend on relative importance of wages to overall operating costs</p> <p>14Can split industries into three groups in terms of effects and relative size by 2020 Group 1</p> <p>A majority of mainly relatively small industries face bites of 75% and under, along with wage bill increases of less than 1%</p> <p>These industries account for around two-fifths of all affected employees, with education being easily the biggest single sector</p> <p>15Can split industries into three groups in terms of effects and relative size by 2020 Group 2</p> <p>A second group faces higher bites and wage effects from just below 1% to just above 2%</p> <p>These industries account for just under two-fifths of all affected employees, with the retail being by far the biggest sector</p> <p>16Can split industries into three groups in terms of effects and relative size by 2020 Group 3</p> <p>Industries in the third group record bites broadly in line with Group 2, but have higher wage bill effects</p> <p>These industries account for around one-fifth of all affected employees, with the food &amp; drink and residential care sectors being the largest</p> <p>17Pressures appear likely to be most acute among micro companies</p> <p>Smaller firms face slightly higher bites than larger ones, but the impact on wage bills are significantly higher among the smallest companies</p> <p>Micro companies account for 13% of all affected employees, with more than half working in forms with 250+ staff </p> <p>Private sector firms more affected2020 coverage: 27% vs 14%2020 bite: 71% vs 52%2020 wage bill increase: 0.8% vs 0.2%private sector covers four-fifths of affected employees</p> <p>But public sector faces overall 1% pay capparticular issue in local authorities where 20% of employees will be affected by 2020 (just 8% in central government)</p> <p>18Private sector firms face larger impacts on average, but public sector pay cap adds to the challenge for LAs</p> <p>Working towards successful implementation of the NLW19</p> <p>Impacts appear greatest in hospitality, retail, care and cleaning</p> <p>Smaller firms look more exposed than bigger ones</p> <p>Business has adapted in the pastemployment (staffing, hours, under-25 substitution)pay (non-wage compensation, pay compression)pricesprofitsproductivity</p> <p>But the scale of the NLW takes us into new territory</p> <p>20The NLW will have a modest impact on many firms, but poses a greater challenge for some </p> <p>Employermust meet own commitments in tight environment</p> <p>Fundersocial care already under severe pressure</p> <p>Implementer must clarify the central role of the LPC in monitoring, advising and recommending on the pace of progress</p> <p>Supporter of businesshelping firms to boost productivity</p> <p>21The government has a clear role to play in ensuring the NLW succeeds</p>