Future of Retail — The CFO Issue

issue 04

employees to £7.50 per hour, an increase of nearly 5%. In addition, this is set to further increase over

the next three years; with the government’s overall objective being for the national living wage for over 25s to reach £9 per hour by 2020. It is expected that over 4.5 million employees will benefi t from the compulsory national living wage increase. You may have heard of something

known as the recommended living wage, proposed by the Living Wage Foundation. The foundation was setup in 2001 with the purpose of promoting a living wage based on the actual cost of living. Key living costs such as accommodation, food, clothing, medical treatment, and even the cost of purchasing gifts are considered in this calculation. They suggest that the recommended living wage that employers pay their staff over the age of 18 should be at least £8.25 per hour, rising to £9.75 an hour for employees living in the London area. Many companies across the UK have

voluntarily opted to offer the recommended living wage and are increasing their hourly rate to at least £8.25 for all employees. This is signifi cantly different to the national living wage, which applies only to employees aged over 25. It must be remembered that the Living Wage Foundation only promotes and recommends this higher living wage, which is entirely at the discretion of the employer, and there is no legal requirement to abide by their recommendations. The national living wage will affect

businesses in many ways, with the main impact being a signifi cant increase in the cost of wages. Implementing this will mean many companies must cover ‘spill-over’ costs in order to maintain the difference between entry level employee incomes and incomes of employees at a higher level, such as supervisors. In other words, the execution of this will have higher costs than simply raising the hourly rate to £7.50 per hour. Many companies are already playing catch-up with regards to what they pay their employees, whether they are full or part time, salaried or temp staff, and will need

to review and adapt their wage structures accordingly. For deliberate non-compliance, a

business could face criminal prosecution and any individual found guilty could face disqualifi cation from being a company director. It will also be deemed permissible for compliance offi cers to name and shame the most exploitative companies within the UK, further damaging their business. Therefore, it is in the interest of all employers to take all steps necessary to ensure that they comply with the new laws. They also need to plan for any future increases to the national living wage. Overall, businesses are going have

less control over what they can pay their employees. It is felt that employers traditionally paying lower level wages will be most affected, predominantly within the hospitality, retail and social care sectors. The biggest impact will be to small businesses with a relatively unskilled workforce since they will face the largest overall increase in their wage costs, no doubt having already been affected when this was fi rst introduced in 2016. Also, any businesses within the service sector that are bound by long term contracts could also see a huge impact when the national living wage is further increased in April 2017. Businesses will essentially have to look at

different ways to recoup their increased wage bill which comes directly from the bottom line and potentially scale back on recruitment and strive for more cost-effective ways of ensuring productivity and effi ciency.

In a bid to maintain

profi tability, some companies will be pushed to consider solutions like reducing or stopping bonuses, raising prices of goods, freezing recruitment, reducing working hours, hiring employees aged under the national living wage threshold, accepting lower profi ts, rethinking plans for investing or reducing the head count. It is inevitable that all these changes will

have a negative impact on any business which will extend to the workforce. It may leave staff members feeling demotivated and disgruntled depending on the type of changes that were made. There are many factors which a company must consider before making any decisions

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