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THE NATIONAL LIVING WAGE:

3 STEPS FOR SUCCESS

CERIDIAN UK | WHITEPAPER

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WHAT IS THE NATIONAL

LIVING WAGE?

In the summer of 2015 the government announced the introduction

of the National Living Wage (NLW), and on the 1st April 2016 it

became compulsory legislation for all UK employers to pay each of

their employees over the age of 25 a minimum rate of £7.20 per

hour.

The NLW rate was set by the Low Pay Commission, an

independent body that advises the UK government on the National

Minimum Wage (NMW) and NLW. As of 1st April 2016 the NLW

rate of £7.20 replaced the NMW which was £6.70.

The NLW should not be confused with the Living Wage (LW), which

many employers choose to pay via voluntary accreditation.

Accredited LW employers ensure their own staff and those of on-

site contractors working on their premises are paid at least LW

across the UK.

Set by the Living Wage Foundation, it is a rate calculated by the

Greater London Authority and the Centre for Research in Social

Policy at Loughborough University and currently stands at £9.40

per hour in London and £8.25 elsewhere.

With the Living Wage Employer Mark and Service Provider

Recognition Scheme providing an ethical badge for responsible

pay, LW has attracted over 2,000 accredited employers since 2011.

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THE NATIONAL LIVING WAGE’S EFFECT ON INDUSTRY

According to the Resolution Foundation, a non-partisan and award-winning think-tank

that conducts authoritative analytical research on living standards in the UK:

“Almost two million workers are expected to have their pay topped up to the

National Living Wage this year. For those currently on the minimum wage, it will

mean a pay rise of over 10 per cent – four times the average pay rise.

And the gains don’t end there, because minimum wage rises also create ripple

effects further up the pay ladder as employers seek to keep gaps between their

lowest-paid staff and those on the next rung up. We estimate that a further 2.6

million employees will benefit indirectly from the NLW, taking the total number of

beneficiaries to 4.5 million in 2016.

The biggest rise in the NLW will come this year, but what about its impact over

the parliament as a whole? As the chart below shows, Britain’s lowest earners

are set for several more years of above average pay rises. As a result by 2020

around six million workers will benefit from the NLW.”

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In a study conducted by the CIPD and the Resolution Foundation, the industry

sectors most affected by NLW were as follows:

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ACCOMODATING THE NATIONAL LIVING WAGE

It is difficult to argue that NLW is not good for the individual or for society in general,

and indeed very few have attempted to make such an argument. Perhaps what will

come as more of a surprise to some is the fact that numerous studies have shown

that paying a living wage also brings significant benefit to the employer. It was not

long after its announcement in the summer of 2015 before businesses began to

demonstrate their understanding that paying a living wage will actually help them:

Attract and retain the best talent

Improve staff morale

Increase productivity

Improve customer service

Employers quickly realised that these ingredients represent the perfect recipe for

increasing profits and market share, and many started to pay at or above NLW some

considerable time before they became legislatively obliged to do so.

However, the resulting business benefits are potentially only to be enjoyed by these

‘early birds’ in the short term before their competitors inevitably catch up. In this white

paper we discuss three important steps to help companies sustain the benefits of

paying a living wage and to accommodate the associated additional cost.

STEP 1: EMPOWER

Irrespective of industry sector, today’s workforce expects a higher standard of work-

life balance than previous generations, and they expect technology to play a key

part in delivering that balance. Direct access to cloud-based Human Capital

Management (HCM) solutions is quickly becoming the norm, empowering employees

to:

Communicate the days and times they would prefer to work

Get early visibility of the shifts they are scheduled to work

Trade shifts with colleagues and volunteer for unfilled shifts

Review their actual worked hours and get a preview of the associated pay

Request time off and view associated balances e.g. holiday, lieu time etc.

In fact we have now reached a point where it is no longer acceptable to expect

employees to make their way to a computer in order to take advantage of such

functionality. With over 76% of adults in the UK owning a smartphone, employees

expect to take control of their work-life balance on the go using their chosen mobile

device.

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Where once a certain margin for error was expected and accepted, accurate pay for

time worked is now taken as a given. Employees expect effective technology to

capture this time along with their absence and performance, and they expect

colleagues exhibiting an unacceptable degree of diligence to be appropriately dealt

with by management.

Empowering employees to take greater control of their work-life balance not only

results in higher engagement (see step 2), but it crucially also drives down

unscheduled absence. If employees have more control over when they work then

they are far less likely to ‘pull a sickie’.

According to the CIPD 2015 Annual Absence survey, unscheduled absence across

all industries costs £554 per employee per year, with the average level of absence

being 6.9 days per employee per year. The survey suggests that 30% of

unscheduled absence is not genuine. Eliminate that 30% of false absence by using

effective HCM technology represents a potential saving of circa £165 per employee

per year – totalling in excess of £330k annually in a company with 2,000 employees.

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STEP 2: ENGAGE

There is no doubt that paying the NLW or indeed the LW will increase employee

engagement, and it is also undeniable that engaged employees generate better

customer service leading to greater quality and higher sales. Many studies have

already demonstrated this, dating back to the nineties when Sears first reviewed the

“Service Profit Chain”.

This was reviewed and re-published more recently in the Harvard Business Review

and the principles are clearly articulated in this graphic:

The positive impact of the fair treatment of employees and employees’ pride in an

ethical place to work results in:

Improved levels of employee morale

Enhanced quality of work

The LW has been also been shown to reduce absenteeism in the workplace. A study

dating back to 2012 by Jane Wills and Brian Linneker from Queen Mary University

concluded that the LW leads to reduced “sickness”. One employer surveyed by GLA

Economics reported that following the introduction of the LW for workers employed

through contractors, absenteeism fell by as much as 25%.

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It also means a positive impact on staff retention and an organisation’s reputation as

a good place to work, with obvious recruitment benefits. This is supported by a recent

report from Shareaction which suggests that the LW is ultimately good for

shareholders.

HCM technology further enhances engagement by ensuring employees are treated

fairly and consistently without the bias often resulting from manual systems and

processes, right through their employment from hire to retire. To optimise the

employee and manager experience, a single solution for recruitment, onboarding,

and performance through workforce management and payroll is key.

The monetary savings to be achieved by reducing employee turnover are significant.

Employee turnover is typically between 20 and 30% in the Retail and Hospitality

sectors, those sectors most widely affected by the NLW increase.

According to a report by Oxford Economics and Unum, that employee turnover

directly costs an average of £3,874 per employee. Add to this the cost associated

with the temporary loss of productivity and this figure can easily rise above £16k per

employee. If an organisation with 2,000 employees were to reduce their turnover by

just 5% by improving engagement through effective HCM, they can expect to save a

minimum of £387k and potentially up to £1.6m per year.

STEP 3: OPTIMISE

NLW can be a catalyst to improve efficiency and thereby bring about often needed

business process improvements. A widely quoted AMR study reports that it takes just

2.3 bad experiences for a customer to abandon a brand all together. Yet how often

are we frustrated by an insufficient number of sales advisors in a retail outlet or a

lengthy queue in the coffee shop due to a lack of skilled baristas? A 2011 study by

The Grocer concluded that the average Briton spends more than month of their life

queuing in supermarkets, yet we still often see far too many unmanned tills at busy

times. NLW can provide the business case to introduce HCM technology to align

staffing to customer demand, thereby improving customer service and driving greater

sales.

Operational efficiency on the front-line isn’t optional either. To remain competitive it

requires investment in systems to support staff in the execution of strategy at the

forefront of operations, on the shop-floor, coffee shop, hotel reception, room or bar.

Getting staff scheduling right is critical, now more than ever. Get it wrong and a

business is faced with frustrated customers who will walk away, and disengaged staff

who don’t care if they do!

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All too often organisations seem unable to predict with any degree of accuracy how

many staff will be needed at any given time. This is particularly noticeable in retail

and hospitality where customer service is paramount. Retailers cannot expect

customers to tolerate lengthy periods of queuing as they attempt to return items

purchased on-line with only two of six tills operating, when only yards away the on-

line collection tills are fully manned with not a customer in sight. Sound familiar?

The introduction of NLW has prompted many large retailers and hospitality

companies to commence predictable cost-cutting initiatives involving significant job

cuts, as they recognise the need for leaner, more efficient operations. The cuts thus

far appear to have been stripping out layers of management in favour of directly

compromising customer service. When it comes to staff on the front-line, where

customer experience is judged, there is much that can be done to achieve efficiency,

minimise job losses and pay NLW.

Effective Workforce Management (WFM) solutions as part of a wider HCM initiative

can improve efficiency by several percentage points by achieving ‘right people, right

place, right time’. This doesn’t just apply to retail and hospitality – the same is true in

other industries in the supply chain such as manufacturing, distribution and the

associated service companies.

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With a degree of organisational flexibility together with an effective WFM solution,

efficiency can be significantly improved whilst taking into account all the necessary

constraints:

Variable labour demand

Employee skills

Employee preferences and availability

Legislation

Contractual terms and conditions

Just a 6% efficiency improvement has the potential to deliver a £1.4m annual saving

to an organisation with 2,000 employees. This saving alone would come very close to

funding the total annual cost of NLW for such a business, but the positive financial

impact doesn’t end there. The improvements in customer service achieved by using

WFM to align staffing to business demand.

IN CONCLUSION

Over 2,300 organisations are already voluntarily paying their employees above NLW

and are enjoying the reputational and business benefits it undoubtedly brings. Almost

weekly one hears of another organisation choosing to pay above NLW or to pay NLW

to all employees regardless of age.

Deploying holistic HCM technology to empower, engage and optimise your

workforce and accommodate the increased cost of doing business will provide

competitive advantage over those that choose not to. Can you afford not to be one of

them?

Find out more about how deploying Ceridian’s HCM solutions can enable you to

accommodate the increasing cost and enjoy the benefits the Living Wage will bring to

your organisation.

ABOUT CERIDIAN Ceridian is a global human capital management technology company serving over 25 million users in more than

50 countries.. Ceridian. Makes Work Life Better™ For more information about Ceridian solutions call 0800 0482

737 or visit www.ceridian.co.uk.

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