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Calculating the effects

  • Global
  • United Kingdom

    23-01-2020

    Eversheds Sutherland survey shows majority of employers support Government’s pledge to raise National Living Wage

    The Government has pledged to raise the national living wage (NLW) to a historical high on 1 April, 2020, affecting many employers including those not currently concerned with minimum wage issues.

    Given this ambitious target, the affordability concerns expressed by some employers and Eversheds Sutherland’s experience of advising those that are already challenged by complying with the complex minimum wage rules, the global legal practice conducted a survey.

    Nearly 100 responses were received from HR professionals from across industry sectors, providing a thought-provoking snapshot of what the potential impact of the changes might be.

    Diane Gilhooley, global head of employment & pensions at Eversheds Sutherland, said of the survey’s findings:

    “This year’s minimum wage changes include the largest ever cash increase in the minimum wage, reflecting the Government’s ambitious plans for its future.

    “With experts divided over the likely long-term impact of raising the national living wage (NLW) to *one of the highest in the world, our survey shows widespread support for the direction of travel.

    “Sixty-three per cent of respondents from across industry sectors agreed with increasing the NLW to two-thirds of median earnings by 2024, while seventy-eight per cent favour lowering the age of eligibility from 25 to 21.

    “This level of support amongst respondents is notable given that the majority will be affected. Sixty per cent of respondents already have workers on statutory minimum pay rates and forty per cent expect the changes to pull new workers into the scope of the NLW.”                                                                                                                                                                                                                                                         In response to the NLW changes, the survey found that only a small minority of respondents are planning to make redundancies or freeze recruitment. Gilhooley observed that many are instead focussing on reviewing pay differentials, absorbing the extra costs, raising prices and restructuring the workforce.

    Reflecting increased enforcement action by HMRC, respondents were asked about their contingency planning. In particular, whether they are taking action to avoid inadvertent, technical employer breaches which have beset many employers as a result of the complex, sometimes ambiguous, minimum wage rules.

    Gilhooley explained:

    “With only thirty-nine per cent undertaking contingency planning, we advise more employers to act now. Even small technical errors in calculating and applying the minimum wage can snowball into negative publicity, significant unforeseen costs, lost management time and disrupted employee relations.

    “Given that new employers and new workers will fall under the NLW going forwards, these compliance concerns are set to grow. The challenge for employers, when responding to future NLW changes, is not simply to meet the rising costs of the hourly rate of pay – they must also appreciate exactly to whom it applies, the nuances around how it is calculated and how to respond to allegations of underpayment by HMRC.”

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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