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The National Living Wage

Stan-Atkins-BICSc_Headshots_034With the introduction of the National Living Wage (NLW) last year bringing the minimum wage for over 25-year olds to £7.20 and the next rise due within weeks, there has been much debate over how this increase will further impact on businesses. Stan Atkins, Group CEO at BICSc explains more

A recent study by the Close Brothers Business Barometer reported that 50 per cent of business owners and managers believe the NLW will result in a rise in productivity and will impact positively on employee efficiency. With this in mind, what might this next change look like for the cleaning industry and how can businesses identify the best strategy for the NLW increase this April?

The cleaning industry is one of many highly labour intensive industries, supposedly up to 80 per cent of any invoice value can be directly attributed to labour. The rise of 30 pence per hour will therefore have a huge knock on effect on an already low paid industry. While this increase may not sound like a lot on an individual level, to larger companies the increase will have a substantial impact on staffing costs. Likewise, smaller businesses with already tight margins will be put under even greater pressure to look at alternative money saving measures to offset the increased wages bill.

Initial fears suggested the NLW could lead to widespread disruption in the workforce including redundancies, reduction in employee benefits, more zero hour contracts and employees being expected to work harder for the increase in wages. However, a report into the early findings from last year’s increase has offered some surprising insights.

In July 2016, The Resolution Foundation produced a report – The first 100 days: early evidence on the impact of the NLW.

Within this, they examined employers’ initial responses to the increase and asked what actions had been taken to manage additional wage costs since the NLW was introduced.

The most popular response employers made was to raise their prices, passing on the increase to clients. This seems a fair and reasonable response; however, this relies on the cooperation of clients willing to pay higher costs. If clients insist on keeping service level agreements the same despite the NLW increase, this leaves employers looking at other options.

Controversially 16 per cent of employers responded by asking their workers to do more. While this is probably one of the least ethical ways to respond, this shows that across the UK, the cleaning workforce is being asked to work harder, faster and take on more responsibility for what is effectively a wage ‘increase’. While this may be technically true, there is a real danger here in employers viewing the NLW as a ‘pay-rise’ and therefore equaling more responsibility without any additional training. This also opens up the issue of hiring younger workers to take on the new ‘less responsible’ roles, and with eight per cent reporting that this was the strategy they employed, it is not hard to see that this is not a sustainable long term solution.

The surprising news was that 15 per cent of employers chose to respond by investing more in training. This strategy takes a long term vision to the NLW by bringing about a shift in how cleaning operatives are viewed by their employers. By offering accredited training, this ensures that not only are the workforce highly proficient skilled workers, they are also happier and more content within their roles, feeling valued and respected by their employers. This also works well with contract negotiations where while cost is key, many clients are still looking for an excellent service, which can be achieved with on-going training. Training is also a great way to improve employee engagement, productivity and retention rates thus reducing employment costs.

The NLW carried out a report on the staff employed at companies signed up for their Living Wage programme (which is higher than the current NLW). Alongside the NLW increase, the Living Wage reported that upon introduction of the voluntary living wage, 52 per cent of staff at companies who had introduced the living wage felt a greater sense of loyalty to their employer, which in turn could result in as much as a 25 per cent staff retention benefit in turnover rates and employee absence levels.

These changes alone would have a massive impact on businesses, and while it may seem counter-intuitive to increase wages in an already squeezed industry with ever tightening margins, the results speak for themselves. Employee engagement should never be underestimated, and any successful business will agree a happy and content workforce is absolutely central to a successful business.

While there are thousands of examples of employers making great choices in response to the NLW, there have been reports of companies taking advantage of legal loopholes, essentially cutting down on other areas to make up for the pay rise and passing on all of the increases to their workers.

Examples of this practice have included:

  • Cutting paid breaks
  • Decreasing hours/shorter hour contacts
  • Hiring younger people/apprentices who can legally be paid a lower wage
  • Cutting staff meals/drinks and benefits
  • Redundancy

While this would initially ease the strain on financials, this is not a long-term strategy for a successful business and is treading in murky waters, the last thing a professional cleaning company would want. The reduction in staff happiness could lead to increased turnover, low employee engagement and a less than enthusiastic approach to work. It’s always worth considering the knock on effect on any cost cutting decision.

While there has been a lot of discussion about the negative impacts the NLW presents, there seems to be a lot more positivity coming out of it for the cleaning sector, with many seeing this as an opportunity to re-engage with their workforce. By offering increased training opportunities and with an engaging approach to the NLW, businesses can build upon and appreciate the employer/employee relationship that can sometimes get lost in the world of the minimum wage industries.

How the NLW will affect individual businesses will depend entirely on the strategy employers choose to work with. While costs may initially increase, offsetting these costs with an innovative approach to recruitment and employee engagement will in the long term reap greater benefits.

About Sarah OBeirne

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