EMPLOYEES are a vital part of any company. Getting the right team together and motivating them are key skills for any employer and wages form an integral part of this. In our monthly legal update Flora Mewies of Ward Hadaway talks about how wages look set to be the next battleground for employers with two key developments on the horizon which may change the landscape for many organisations.
The first of these will be the introduction of the National Living Wage (NLW), which comes into force on April 1.
From that date, all employees aged over 25 will need to be paid a minimum of £7.20 an hour, an increase of 50p per hour on the current National Minimum Wage. This is expected to increase to £9 per hour by 2020.
Concerns have already been expressed by employers about how much the introduction of the NLW is going to cost them. A report from the British Retail Consortium says the NLW will add £3bn to annual wage bills alone, while the costs of a new levy to fund apprenticeships will be around £400m a year.
Smaller businesses will also face challenges when the 50p increase is introduced, particularly those in the hospitality, retail and social care sectors where low pay is common and margins are tight.
Many companies have now put a plan in place with the majority of employers making the following changes: 22% have planned to accept lower profits; 16% said they would reduce overtime and bonuses; 15% said they would raise prices; while 15% said they would reduce the number of employees through redundancies or slower recruitment.
As well as the increased cost this will result in for your business as an employer, critically it will mean that you may well see a trend in clients in lower paid sectors reducing their recruitment and placing more reliance on temps rather than perms and negotiating harder on salaries and referral fees.
Clearly, whichever way you look at it, the NLW is set to make quite a difference. It will really only be after April 1 that employers will be able to fully consider the impact to their business as well as the action they are going to take to ensure the increase in costs to them can be maintained.
As well as rates of pay changing, employers will also soon be dealing with increased scrutiny over who gets paid – and how much they receive.
Mandatory pay reporting has now been introduced to monitor gender pay gaps; it will apply to all private and voluntary sector employers in England, Wales and Scotland that have 250 or more employees on 30 April 2017 (or any anniversary of that date).
While the first reporting does not have to take place until April 2018, employers should start to familiarise themselves with the full details of the new requirement to report gender pay gap information, which have now been published in the form of the draft Equality Act 2010 (Gender Pay Gap Information) Regulations 2016. The final form Regulations are due to come into force on 1 October 2016.
Employers should start the calculation process as the initial analysis will take time to complete with larger employers with complex pay structures needing to start this exercise promptly in order to establish the level of any pay gap.
Employers have been asked to report on the mean and median gender pay gap across their workforce using an hourly pay rate for each relevant employee. The definition of pay is broad and covers basic pay, paid leave, maternity pay, sick pay, and most allowances such as car allowances, shift premium pay and bonuses. However, overtime, the value of salary sacrifice schemes and benefits in kind will not be included as part of the calculation.
The draft definition of ‘relevant employee’ is someone who ordinarily works in Great Britain, and whose contract of employment is governed by UK legislation. It has been suggested that a wider definition of employee could be used as it is in other legislation. This could potentially bring some self-employed contractors within the scope of the Regulations.
While enforcement is limited, employers cannot ignore the requirement to complete the report. They must publish their reports on a UK website that is accessible to the public; this must then be maintained for at least three years for the progress to be tracked. As well as this, the information must also be uploaded onto a government website which will be used to monitor compliance.
The introduction of mandatory gender pay gap reporting may be a step in the fight against gender inequality, but the new regulations have been criticised for increasing the burden on businesses, as the reporting is going to be extremely time-consuming to start with, while not providing any enforcement mechanism, or any sanctions for failing to comply.
Ward Hadaway is one of the UK’s Top 100 law firms with offices in Leeds, Manchester and Newcastle. We are a Northern law firm for national business. Led by experienced experts, our specialist recruitment services team offers commercially-focused legal advice on the whole range of issues encountered by businesses operating in the sector across the UK and overseas, from HR and employment to regulatory and corporate matters.
