The Low Pay Commission will be responsible for making recommendations on changes to the National Living Wage and the Government has said that it is set to increase to £9 per hour by 2020. This sits alongside the existing National Minimum Wage framework which was updated in October 2015 to:
A recent survey indicated that as many as a quarter of employers will need to increase salaries to conform with the National Living Wage and it raises a number of questions that they will need to consider.
For example, how will employers manage the various pay rates for younger staff which are enshrined in law by the National Minimum Wage? Is there a clear business case to pay 24-year olds less than colleagues who are a year older?
There will also be a knock-on effect as salary differentials with roles higher up the pay structure will be narrowed. Will employers be able to afford to restore these differentials by making additional increases to the pay of these people?
If they do, then they will need to conduct a broader review of their pay structures. Of course, affordability will be a key consideration, but if organisations only do what is necessary then the gap between the lowest paid and those in slightly more senior roles will be squeezed.
With pay review season in full flow, employers may look to divert some of their pay budget to address the challenges of the National Living Wage, leaving less available for high performers elsewhere in the organisation.
News and views from the EBRS team
Updates and opinions on the world of employee pay and reward from the team at EBRS. We've archived articles from before 2016.