HR FOCUS
doing so. There are many stakeholder groups to consider during this change, primarily including the employees, the employers and the clients. Negotiations across the board will have already taken place or will be happening in the very near future.
The first of the stakeholder groups to consider is the employees. There is no doubt that paying a living wage is beneficial for the entry- level workforce across all sectors. Not only does it make daily life slightly more affordable, it also motivates employees to stay with an organisation rather than constantly searching for a slightly better paid job in the sector. This reduction in staff turnover will present workers with the opportunity to enhance their skill set via training and also open the door to career progression.
The anticipated decrease in employee churn will also be of benefit to employers. Employers will have been aware of this impending change for some time and although the benefits of the living wage are vast, the change does not come without its misgivings.
Of course, less staff movement equates to a reduction in ongoing recruitment and its associated fees. However the increased pay rate will in turn support the sector during recruitment drives, due to staff feeling more valued and the attraction of a higher salary.
A motivated and appreciated staff will also theoretically lead to increased levels of service and productivity, and FM companies must nurture this loyalty and commitment. However, what are the knock-on effects of an increase in entry-level wages and what does this mean for employees higher up the salary chain?
An increasing salary for entry- level roles will result in many staff members earning nearer to the salary associated with higher skilled roles. The closing salary gap will have much wider implications and could lead to further negotiations with staff on all levels. At what level should this stop? What is an acceptable difference in salary bands? All of these questions brought about by the new regulations
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will need to be addressed industry wide but also on a case-by-case basis. The same approach is required when providers are negotiating with clients on the sudden additional personnel expense.
The question of absorbing the cost varies drastically depending on the FM contract in place and the agreed terms. There will undoubtedly be more questions raised about the practicalities of the living wage being implemented, especially when it comes to negotiating with the client. Some might say that contingency funds should have been built into the contract. Clearly, a good client relationship in this instance is
NLW FACTS
• The National Living Wage takes effect from 1st April 2016 and will push up the minimum hourly rate for workers over 25 from £6.70 to £7.20.
• Those under the age of 25 will continue to receive the lower pay rates.
• There is a voluntary higher rate of the living wage in London, which will rise from £9.15 to £9.40 an hour.
• The compulsory National Living Wage applies to all staff working two or more hours per day for eight or more consecutive weeks of the year.
• It is expected to exceed £9 an hour by 2020.
• The impacts will differ throughout the country. For example, 3% of employees in the City of London will see an increase in their wages whilst 22% of workers in Sheffield will receive a pay rise.
• The bill is anticipated to have greatest impact on retail and hospitality sectors.
• To compensate for the higher wage bill, 22% of employers plan to accept lower profits; 16% are reducing overtime and bonuses; 15% are raising prices; and 15% are reducing the number of employees.
critical. It has already been seen in some cases that the client is willing to cover the additional cost, whilst in other cases it is left to the provider, or on occasions shared.
When assessing the impact of the UK government National Living Wage, it is also interesting to review European government sanctions and how they have been addressed in countries throughout the EU.
Take Italy for example. In the second year of all public contracts, the public administration is required by law to review the prices of goods and wages, with public bodies obliged to accept any annual increases from suppliers in relation to national consumer price indexes (ISTAT). For both public and private clients, price reviews are also applied in cases of inflation. With private clients, it is possible to renegotiate contractual conditions but due to the current economic crisis, sometimes FM providers are required to reduce profit and absorb the cost in order to maintain the contract.
Spain’s government annually fixes a national tariff for all security staff, which states the minimum wage an employer must pay. In 2016, the agreed wage level rose by 2.48%. FM companies operating in Spain were therefore required to explain the arrangement and renegotiate with their clients, a prospect which 60% of ECS partner Grupo Sagital’s clients accepted following a personalised approach to negotiations.
Stabilising the workforce, improving staff retention and boosting employees’ quality of life are all good outcomes for the industry despite the additional overheads and difficult conversations with clients brought about by the new compulsory National Living Wage. When assessing the impact, it’s important to remember that things could be much more testing, as has been the case in Italy and Spain. If we think that implementing the new National Living Wage has and will continue to be a challenge, spare a thought for Turkish providers who have had to absorb a 25% increase to their national minimum wage.
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