Something had to give – is the National Living Wage backfiring?


Posted in News


It was supposed to place the lowest paid on a more secure footing but 1 month in, is the National Living Wage already backfiring?

As you’ll no doubt know from the raft of changes you’ve recently had to make to your payroll systems, the National Living Wage (NLW) is up and running. Since April, workers aged 25 and over have been entitled to a minimum of £7.20 per hour and businesses up and down the company have been scrambling to conform.

But it seems that something else is happening too. A BBC report suggests staff in some businesses are facing cuts to compulsory overtime payments, offsetting the cost of the NLW. At the company in question, a food processing plant, the report suggested overall staff pay was going down, not up.

Coffee chain Café Nero has scrapped free food for its staff, says the report, although generous discounts remain. Tesco and the John Lewis Partnership have scrapped or adjusted some of their premium payments for overtime and bank holiday working. And DIY retailer B&Q says it is “reforming its pay and reward structures”, an announcement that Joan Ryan, MP for Enfield North described as a “euphemism for cutting staff pay”.

“We told you so”

As yet, no one has explicitly said “We told you so” to the chancellor, but responses from business leaders do seem to be heading in that direction.

We’ve reported on these pages the concerns of business, not only of the impact of the NLW, but also of pension auto enrolment and the apprenticeship levy – and it seems the ‘triple whammy’ effect of the new measures is leaving companies with some tough choices if they are to remain competitive and ensure their payroll (and other) costs don’t start spiralling out of control.

James Sproule of the Institute of Directors told the BBC that companies needed to find ways to make all the changes “add up”.

Spirit of the law

Chancellor George Osborne has hit back at firms who don’t adhere to the “spirit” of the law, telling ITV that “companies should be much more careful about their reputation.”

He has suggested that government pressure would be brought to bear on companies who make tweaks to one area of their payroll processing to offset NLW related benefits elsewhere.

Yet the reality for many businesses facing the cost of the new NLW appears to be that something had to give.

Need help making your payroll compliant with the latest legislation? Talk to us here.