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04th August 2015

The Living Wage: Welcome relief or a headache?

The Living Wage: Welcome relief or a headache?On 8th July, Chancellor George Osborne delivered the Government’s budget and a surprise announcement introducing of a new Living Wage of £7.20 per hour. Most would support an increase in wages, subject to their business being able to afford the increased cost.

The intention is that the Living Wage will come into force in April 2016 for workers aged 25 or over – essentially creating a new age group for a minimum wage. The rate would then increase year on year to £9.00 per hour by 2020. The Government seems to have ignored the Low Pay Commission’s own in-depth research that recently suggested the national minimum wage for adults should be £6.70 per hour. The amount is also less than the “true” living wage which has been calculated at £7.85 per hour outside London and £9.15 in London.

Corporate tax cuts

George Osborne has tried to soften the blow by giving tax cuts for employers, with corporation tax to be reduced to 19% in 2017/18 and then 18% in 2020. Furthermore, the employer National Insurance allowance will increase from £2000 to £3000 from April 2016.

This all sounds great in principal, assuming the maths stack up!

However, this is not as straightforward in the social care sector where 60% of a typical social care provider’s budget is usually spent on staffing.  Many charities are saying that social care will seriously struggle with the introduction of the Living Wage, particularly due to an ongoing squeeze on social care funding from local authorities and central government. Plus, many local authority rates are inadequate, failing to pay for travel time, training, and management associated with delivering good quality care.

The hidden costs

Unison suggest that what is being given with one hand to workers in the care sector, is being taken away with the other, as the increased income will reduce the benefits received such as working tax credits.

Further, what other hidden implications are there? The introduction of an increased minimum wage for workers 25 or over (regardless of skills) will inevitably drive up the salary demands of semi-skilled and qualified workers. There is also a risk that the introduction of this Living Wage will result in employers with tight budgets and margins, looking to recruit younger workers – possibly resulting in an increase to age discrimination during the recruitment process.

Businesses are encouraged to plan ahead. Discuss the implications with your accountants and carry out financial forecasts which should also take into consideration the ongoing increase in the cost of pension auto enrolment.

Oliver McCann, Employment Partner, Napthens LLP – QCS Expert Employment Law Contributor

Topics: Human Resources

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