How food and drink retailers are dealing with the introduction of the National Living Wage
Tuesday 10th May 2016
Mark Jones, senior solicitor and retail expert at Gordons, looks at how the nation’s businesses – and food and drink retailers in particular – are coping with new wage legislation.
The introduction of the National Living Wage (NLW) has undoubtedly created a headache for many retailers and suppliers, with both the financial and administrative burden being felt as 3.2 million workers see their pay increase with immediate effect.
For most businesses, the key question is exactly how the additional costs will be absorbed, but the knock-on effect also focuses on issues ranging from employee happiness to customer satisfaction.
Foremost is the need to bump all pay for staff over the age of 25 to £7.20 an hour; a requirement that, when applied to the vast workforce of many food and drink retailers/suppliers, will lead to a financial sinkhole that needs to be offset.
If you follow trade press, or Gordons’ Retail Bites, you have seen that the Bakers, Food and Allied Workers Union has suggested that 2 Sisters and Samworth Brothers are making changes to their employees’ terms and conditions to offset the impact of the NLW. An anonymous B&Q store manager, using the pseudonym ‘Kevin Smith’, has started a ‘Change.org’ petition after B&Q, according to Mr Smith, introduced cuts to employee benefits in response to the introduction of the NLW.
Along with accusations of companies altering contracts and working hours to help absorb the cost burden of the NLW, there is also the very real possibility of job losses, according to the Office for Budget Responsibility (OBR).
In its major economic report that coincided with last July’s emergency Budget, the OBR estimated that around 60,000 jobs would be lost across the country due to money being diverted to meet the government’s low pay criteria. The figure is a proportion of the total UK workforce based on employers cutting the number of available working hours by 0.4 per cent. This seems like a real possibility especially when you consider the Office for National Statistics is still reporting labour productivity as being below pre-credit crunch levels and a considerable amount of spare capacity in the labour market (i.e. workers are not producing as much as they used to).
The 60,000 figure is also popular with Begbies Traynor, which estimates that the 60,000 or so companies that are already experiencing challenging economic conditions will be further hit by the need to introduce pay rises for eligible staff.
This is further compounded by the need to appease other staff who do not currently meet the criteria and will see their colleagues receive salary increases while ostensibly doing the same job.
Retailers and suppliers then face the conundrum of either offering pay rises to these staff to maintain the status quo – which will have a further detrimental financial effect – or to risk staff discontentment by maintaining salary levels.
For the food and drink retailers/suppliers and other businesses that are forced to increase their employee wage pots, a difficult decision needs to be made regarding where the extra money is obtained.
For those unwilling to turn to lending options – or, much worse, change contracts – to make the books balance, the inevitable solution will be to increase the price of products and services and pass the costs on to the customer.
The obvious consequence of this is customer discontent and a potential drop in both consumer footfall and the volume of purchases, but the longer-term effects could extend to reputation damage and permanent loss of business.
The irony of the situation is that some people who find themselves earning more due to the introduction of the NLW may soon find that the cost of living rises in tandem, cancelling out any perceived benefit.
For food and drink retailers and manufacturers, it will very much be a question of who makes the initial move to increase customer prices, which, when you think about it, would be a good move for retailers and suppliers who have seen inflation at an all-time low or deflation when it comes to food and drink.
Although no business will want to be the first to do so, every day spent holding out will see funds diverted to staff wages, staff discontent rise as their terms are changed to reduce the financial impact of the NLW, or margins increasingly shrink.
If you need legal advice on food and drink retail matters, please contact Mark (0113 227 0297 or firstname.lastname@example.org). For more information about us please visit www.gordonsllp.com/sectors/retail-lawyers/.