Organisations risk breaching discrimination law, amid cuts to overtime and Sunday pay
The introduction of the national living wage (NLW) in April was heralded as the largest increase to the UK’s minimum wage floor ever attempted, representing a pay rise of 50p per hour for over-25s.
According to the Resolution Foundation, a quarter of the UK workforce stands to benefit from the NLW, which is set at £7.20 an hour.
But the national wage bill could rise by £1.5bn as a result, and critics have claimed that the government – which gave just 12 months’ warning of the legislation coming into force – has offered employers little guidance on how to alleviate the costs, beyond comparatively small cuts to corporation tax and business rates.
Campaigners, meanwhile, have heralded the measure as a small but important step in reducing inequality. But there is concern that many employers are circumventing the spirit of the NLW – either by reducing overtime rates, cutting benefits or withdrawing hours, or by directly discriminating against over-25s in the recruitment process.
Kevin Gibson, senior employment consultant at Croner HR, says he was asked by an employer if they could “fire any short-serving staff who are over 25 and replace them with younger staff”. The Association of Labour Providers, which represents recruiters supplying agriculture and manufacturing businesses, says it has been asked whether it is possible to favour under-25s in recruitment, and to stop supplying temporary labour when the worker turns 25 on the grounds they will cost more than the end user is prepared to pay. The Department for Business, Innovation & Skills has asked the Low Pay Commission (LPC) to “investigate – after the introduction of the NLW – to what extent employers paid those aged 21 to 24 the NLW and whether employers began substituting their older workforces with cheaper, younger workers”.
Matthew Hancock, minister for the Cabinet Office, has defended the NLW’s introduction as a deliberate attempt to reduce youth unemployment. Coupled with the recent abolition of employer national insurance contributions for apprentices under the age of 25, the NLW will help make recruiting young people more cost-effective. But Rob Eldridge, co-head of employment at law firm Berwin Leighton Paisner, warns: “No employer should be basing recruitment decisions on age. Even if the justification is cost, and cost alone, we know from previous cases that is unlikely to stand up in court.”
Just 8 per cent of respondents to a joint CIPD and Resolution Foundation research report said they plan to hire more workers aged 24 and under. But the situation becomes murkier when agencies are involved. An increase in the use of temporary or agency workers, driven by cost, could support indirect discrimination by taking the problem ‘off the books’. “It’s hard to change the age profile of an existing workplace, but agencies are a different matter,” says LPC secretary Simon Blake.
Employers such as Costa Coffee and fashion chain H&M have ignored the arbitrary age boundaries and awarded their entire employee base a pay rise. But the first few weeks of the NLW have been equally notable for the widespread scrutiny of employers that have made cuts to wider remuneration packages – whether it’s Tesco (which is reported to have slashed overtime pay), John Lewis (removing overtime and Sunday rates for new starters) or Samworth Brothers (ending paid breaks).
A petition from a B&Q manager that castigates the DIY giant for reducing pay for overtime and Sundays has attracted more than 140,000 signatures. Though most of the businesses involved denied the moves were related to the NLW, Chancellor George Osborne called for organisations cutting staff perks and overtime pay to be “publicly shamed”. Labour MPs said employers altering terms and conditions should be punished.
Chris Rowley, professor of human resource management at Cass Business School, says: “The NLW is part of the need to prompt recalcitrant employers to invest in training and technology, to make workers more productive and help break UK plc’s ‘low pay, low productivity’ trap, and yet we’re attacking employees’ often well-earned, long-standing contractual benefits for ‘financial reasons’. Knee-jerk reactions will have long-term effects on employee engagement, motivation and morale.”
Such moves will also do little to address underlying issues relating to productivity. Come 2020, when the NLW is forecast to reach at least £9.02 an hour, employers will have “used up all the short-termist” measures and will have to look to other methods, says Conor D’Arcy, policy analyst at the Resolution Foundation.
Charles Cotton, performance and reward adviser at the CIPD, urges employers to “see staff pay as an investment rather than a cost”. Axing benefits that have low take-up and focusing on improving productivity would be a more sustainable way to address cost issues, he adds. “Businesses’ brands could be trashed if customers take note of those cutting benefits or pay. It might also mean potential recruits won’t apply for jobs if they see that organisation paying for the NLW by reducing or removing other employee rewards.”