UK national living wage must add to overall staff value
UK national living wage must add to overall staff value
19 APRIL 2016 7:28 AM

On 1 April, the U.K. initiated a new minimum wage for those aged 25 years and older. Sources said the new National Living Wage must be one part of an overall value-add package to train, develop and retain staff.

LONDON—Hoteliers in the United Kingdom are hopeful that the new National Living Wage could be a useful tool in hiring and retaining talented staff.

Hotel-industry sources said the legislation, which became law on 1 April, is a positive step forward but it must not be considered a standalone improvement to overall employee well-being, but rather incorporated into a broader platform of initiatives that add value both to employees and to businesses.

The NLW initially sets the wage floor for those aged 25 and over at £7.20 ($10.19) an hour and is set to rise to more than £9 ($12.74) by 2020. The initial NLW is a 10.8% increase on the previous minimum hourly wage of £6.50 ($10.00). The minimum wage per hour for those aged younger than 25 years will rise to £6.70 ($10.31) in October.

The government announced the legislation last July, when the U.K. pound sterling was stronger against the United States dollar.

Robert Nadler,
Nadler Hotels

Robert Nadler, CEO of Nadler Hotels, said the bottom line is that companies must pay employees decent salaries. If not, then it will be the government and taxpayers that pick up the tab in increased social-welfare and benefit payments.

The U.K. welfare system can top up low wages with monetary, housing and other benefits, if employees merit it.

“With the younger generation it is about quality of life,” Nadler said. “They want to receive proper training, a pleasant workplace and an interesting and rewarding career. As an employer, pay staff salaries they can live on. Do not pay those at the lowest end badly.”

Thomas Mielke, managing director of executive search at advisory firm AETHOS Consulting Group, agreed with Nadler.

“On one side, yes, it is great to say you are doing the right thing, but strike the right balance. Don’t just talk about the NLW, but about employees’ overall compensation,” Mielke said.

Mielke added there was a worry that businesses would offset increased wage costs by skimping on service levels or taking the difference from service charges that by right belong to employees.

Nadler said hotel businesses operating with tight margins might suffer from the new wage structure. But despite that, he said businesses must take a role in improving the lives of their workers.

“Shareholders might have to accept that they will have less. Possibly this notion is undervalued. It is a social imperative about the way your run your business. Businesses need to take on some form of social responsibility,” Nadler said.

He said the new wage regulations could be a morale booster if handled correctly.

“What we really need is a social balance sheet, not just a financial one. What (the NLW) should do is to motivate staff and add to their quality,” Nadler said.

Mielke said raising the minimum wage might have the dual effect of having the unskilled seek better employment while also affecting productivity, training and education, pension levels, performance-related earnings, and guest-service charges.

Incorporating benefits
Historically gradual increases in the minimum wage have not negatively affected business, Mielke said, but the NLW did raise the question about adding value to the overall package of compensation offered.

Thomas Mielke,
AETHOS Consulting Group

“Do not keep (NLW) in isolation, but provide a more holistic way,” Mielke said. “It is all about retention and mid- to long-term career development.”

Providing more than the bare minimum in terms of benefits is important in retaining employees, particularly among those who receive the NLW, which is a group with high turnover, Mielke said.

“Yes, a little more money is important, but so is the idea of how can I add value for that employee without necessarily increasing base salaries,” Mielke added.

Political concerns remain
Hoteliers are hoping that politicians can streamline and simplify the process of scheduled wage increases under the NLW.

Martin Couchman, who retired from his position as deputy CEO of the British Hospitality Association Friday, is worried that wage increases for those under 25 years of age will be set in October this year and again next April, when both sets of minimum wage would get their next increases.

Couchman said it is sensible to have only one increase per year, and employers are currently scrambling to figure out what the minimum wage should be for those under 25 in a relatively compressed, six-month time frame.

The independent Low Pay Commission, which recommends national minimum wage and NLW levels, seeks to raise the NLW to of 60% of median earnings for those over 25 of age by 2020, Couchman said.

“Wages have not been increased at the rate the government expected,” he said. “The LPC has had lots of discussion on how to get to (that 60%), but if they can only have raises of 3% to 4% per year in the short term, they might have to have one huge raise closer to 2020.”

The BHA also is lobbying to have value-added taxes (sales taxes) on hospitality reduced and to delay the imposition of a levy on businesses to pay for the creation of apprenticeship programs, which are mandated by law starting in April 2017.

Couchman said he had not seen suggestions that jobs are being lost due to the NLW, but he believes business could look to cut down on hours and services.

London pressure
Mielke said wages should be viewed differently in London than the rest of the U.K.

“London has a different cost of living, but everyone will receive the same increase,” he said. “Someone, for example, having an internship at a London 5-star hotel certainly will not be able to live close. They have to organize themselves, rely on personal networks.”

Nadler agreed, pointing out that the U.K.’s largest city has a different cost of living and a lack of affordable housing.

“There ought to be a differential in London. It’s a lot tougher here,” Nadler said

Couchman said all was not roses in the U.K. regions, either, with service levels potentially under threat from increased costs and hoteliers with narrow margins worried about the banks.

“London is a boom economy, but out in the (regions), independent operators face a potentially hard time paying for the NLW and retaining staff,” Coachman said.

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