Raising productivity will be key to coping with the National Living wage (NLW), according to CIPD, the professional body for HR and people development.
The NLW, which came into effect last week (April 1), has been criticised by FWD and others for putting a burden on lean businesses which operate on thin margins.
Charles Cotton, performance and reward adviser at the CIPD,said: “The NLW will increase the pay of millions of the UK’s low-paid workers. Ultimately, though, it will only be judged a success if employers can sustain the higher wages without the need for job losses and cuts to other pay and benefits, particularly in the retail and hospitality sectors. With automatic enrolment still underway and next year’s Apprenticeship Levy on the horizon for larger employers, the next eighteen months will be a tricky balancing act for businesses across all sectors.
“The key to sustainable increases in pay for the lowest-paid without damaging their job prospects is through raising productivity, and not the kind that comes from getting rid of people and making the rest work harder. Among the 32% of employers that increased salaries by more than 2% in 2015, 28% were able to do so through productivity improvements, as our latest Labour Market Outlook found.
“However, many employers [particularly small businesses]may find it difficult to put productivity improvements into practice. With employers more likely to absorb the cost of the increase, rather than pass it to consumers through higher prices, not doing anything could weaken businesses.
“Given the Government’s intention to increase NLW above inflation every year until 2020, organisations need to commit to reviewing their working practices and job design and ensuring employees have the best possible chance to be as productive as they can be in their roles.
“The NLW is an opportunity for employers to examine performance and work smarter, by designing jobs that provide challenges and opportunities available for employees to use their initiative and develop new skills.”