The National Living Wage: One Month On

The National Living Wage (NLW) came into effect on April 1st and is designed to boost the incomes of many of the UK’s most poorly-paid employees. It’s paid to workers aged 25 and older, and is currently set at £7.20 an hour, with a target of it reaching more than £9 an hour by 2020. It will give a pay rise to 1.3m workers this year, according to the Office of Budget Responsibility. It is different to the National Minimum Wage and the Living Wage.

One month on from the introduction of the NLW, there are concerns that it may be affecting job creation and employment.

Impact of the National Living Wage on employers

Research indicates that the NLW has had an immediate and significant impact on employers: one study suggests that just under 60,000 businesses are already in a “dire financial state” and will be “stretched to breaking point”. Companies in the retail, hospitality and leisure sectors are reckoned to be among those most affected as they tend to rely on lower paid labour.

Employers are finding various ways to cut wages bills, including reducing overtime and bonuses, lowering headcount and reducing pay for workers under 25.

Some employers have imposed new terms and conditions

Because of the NLW, some employers are already looking to make changes to employees’ terms and conditions to keep a pay package the same overall despite an increase in physical wages. Overtime rates is one area where cuts are being made; attendance bonuses and profit share percentages may be others in the firing line.

Several businesses have found themselves in the headlines as they look to rationalize the impact of the NLW.

Belgian coffee shop chain Le Pain Quotidien has been criticised for halting paid breaks for staff just before the introduction of the NLW. Staff at the chain, which has 26 outlets in the UK, had new terms and conditions imposed just over a month ago, offsetting an increase in their basic pay from about £6.80 an hour, just over the minimum wage, to the new minimum of £7.20 an hour for over-25s.

Food chain Eat has sought to offset costs by not paying staff for their 30-minute break – saving it £3.60 per employee per shift if they receive the NLW.

Italian restaurant chain Zizzi has cut the share of customer tips that goes to its waiters in response to the NLW – and it has also restricted free food for its staff.

Chancellor George Osborne has said firms that cut free staff lunches or reduced breaks would be “outed” and see their reputations hit as a result. He said: “It makes me angry. One of the things I’m proudest of doing in this job is introducing the national living wage. Companies are no different from people – we’ve got responsibilities and should abide by them.”

However, Tim Martin, the chairman and founder of the JD Wetherspoon pub chain, has vowed to maintain staff bonuses despite having to set aside extra cash. Mr Martin said: “I’m not going to cut any perks for employees as a result of the national living wage . . . About 40% of our profits go to staff in the form of bonuses and free shares, and there are no plans for that to change.”

What employers must know if considering changes to terms and conditions

It is generally unlawful to change any term of employment without the agreement of both parties. Employers who want to make changes to overtime rates or any other aspect of a benefits package that a member of staff receives should look to gain employees’ agreement before doing so, otherwise they risk a breach of contract claim.

In extreme cases, employees could claim that they had no alternative but to resign from their employment due to a pay cut which fundamentally undermined the employment relationship. In this case, the employee can consider themselves to have been dismissed and make a claim to an employment tribunal.

Employers can change the key terms of employment if there is a pressing business need. In such cases, the agreement of the employee is not necessarily required, although it should always be sought in the first instance. There should be a period of consultation where the employer keeps employees abreast of plans, the reason for them, and any timeline involved. Employees must be given the opportunity to have their say.

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