Like it or not, here’s how UK businesses can prepare for the National Living Wage

Like it or not, here’s how UK businesses can prepare for the National Living Wage

What’s the minimum wage that workers should earn? It’s a hot topic in many economies, with an increase in wages seen as one solution to help lift people out of the poverty line.

The United Kingdom is the latest country to introduce plans for a “national living wage” – the flagship policy of George Osborne’s summer budget. While the minimum wage and living wage outline how much someone should be earning, there is a marked difference between the two.

The “minimum wage” is about how much employers must pay their employees within a given jurisdiction, while the “national living wage” is how much someone should earn for an equitable standard of living within a given area. The government plans to increase the minimum wage from £6.50/hour to £6.70 for people over 21 years old. From April 2016, employers will pay a “national living wage” of at least £7.20 to people aged 25 years and over.

There has been widespread support for the reforms – according to one survey, 75 percent of opinion formers were in favour of the changes, even more than the general public (two in three respondents were positive). However, unsurprisingly, a number of businesses are at loggerheads with the government about these changes, citing increased operational costs, reduced work hours for employees and scaled back recruitment efforts. The reality is – like it or not – businesses will need to prepare for these policy changes.

Here are five tips for businesses to action today to be one step ahead of the reforms.

Increase employee productivity.

Sure, the immediate reaction is to cut employee hours or number of staff, but businesses should first exhaust the option of finding ways to increase employee productivity. Are there areas where people are spending too much time on highly labor-intensive administrative tasks or other inefficiencies? For example, is the human resources department focusing a lot of their time in processing manual documents, rather than using that time more effectively in driving strategies in hiring, training and retention? Scrutinize each department and weed out the areas where time could be spent in better supporting business growth.

Start managing your other controllable expenses.

By some estimates, payroll accounts for more than 50 percent of operating expenses in businesses. Particularly in the professional services industry, time and expense data needs to be entered quickly and accurately to invoice clients on time and minimize revenue leakage from potentially missing hours in timesheets, lost transactions and inaccurate billing. Lengthy cycle times in processing invoices increases the chances for revenue leakage, and the more disparate the information, the higher the chances of error. Working with IT consultancy Xoomworks, Replicon improved the firm’s invoice turnaround times by 30-40 percent. Identify where you can streamline operating costs to enable profitability gains.

Get a handle on your recruitment and retention.

The cost of employee churn is no trivial number – and when you add up the costs for interviewing, hiring, training, reduced productivity, lost opportunity costs across multiple workers, this number is skyhigh. For entry level employees, it costs between 30-50 percent of their annual salary to replace them, while for high-level or highly specialized employees the estimate is closer to 400 percent of the annual salary. Consider your top talent and how to invest in the right training and methods of retaining them. Reducing hours and staff also has the potential consequence of impacting employee morale – and raises an amber flag in people’s desire to stay in your business.

Don’t be afraid to invest in technology.

It’s the age-old business dilemma to drive business growth – balancing investments while optimizing costs. Here’s where it makes sense to look at automated technologies to drive profitability and productivity gains in the long term. Whether it’s digital ordering solutions in restaurants, marketing automation to effectively target multiple channels, or time and attendance solutions that streamline to payroll, the return on investment will help easier handle costs over time. It is also much easier to set metrics and track them with automated systems than conduct this manually.

Look at the bigger picture.

While the introduction of the national living wage will pose a significant shock initially to many UK businesses, the more important consideration is in evaluating the company’s key objectives and the role that your employees play in accelerating growth. There are serious penalties for businesses who skirt the upcoming reforms. Organizations that will win in the long term are those that continue to cultivate their teams and invest the time in giving them the right opportunities, responsibilities and technologies to advance their careers – and your business.


Adam Walker


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