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Author: Eastern Europeans. 2016

Care and Hospitality Employers: View on National Living Wage

This article surveys current opinions on what effects the new, higher national minimum wage may have on the care home and hospitality industries of the United Kingdom (UK). Since the National Living Wage became effective 1 April 2016, all British employers must pay these hourly rates:

Age >25: £7.20/Hour
Age 21-25: £6.70/Hour
Age 18-21: £5.30/Hour
Apprentices: £3.30/Hour

The pressures of the Living Wage on employers will be substantial because it will affect not only basic salary but also holiday pay, pension contributions, and overtime rates. The pay rate issue is already in the spotlight.
The government may "name and shame" more employers who fail to pay the minimal rates. Following last year's shocking announcement that Monsoon Accessorize had not paid employees at least minimal rates, the government expects to name more such employers shortly.
The National Living Wage is not the same as the voluntary living wage set annually as the amount a full-time worker needs for a decent standard of living. That current hourly rate is £8.25 nationally and £9.40 in London, higher than the new National Living Wage pay rate.

Employer Reactions
Employees who qualify for the new hourly rate may see little change in their income if employers cut their hours and overtime to contain costs. The new rate will have most impact on retail and hospitality industries that employ cheap labour.
Some employers say they will raise prices to cover the higher wage costs, others say they may replace workers with machines where possible, so shoppers might expect more automatic checkouts as an example. Ultimately, employers must improve productivity per hour worked, meaning better management and training. Some employers paying the voluntary living wage report that higher pay leads to higher productivity from more loyally motivated staff.
Will unemployment rise? Yes, say some economic commentators. The Office for Budget Responsibility estimates 60,000 fewer jobs by 2020 as a result of the higher National Living Wage. Economists disagree about whether minimum wage increases raise unemployment rates. Several studies comparing markets with and without such wage increases have found few or no differences.

The Care Home Industry
Martin Green, chief executive of Care England, a registered charity and the leading representative body for independent care services in England, warns that the higher pay rates under the National Living Wage will shut care homes down across the country. He says: "If you're poor and you're old in Britain . . . The state cannot afford to take care of you anymore."
The Local Government Association (LGA) estimates the National Living Wage could cost councils at least £330 million over two years for contract cost increases. The cost of care for the elderly could drive publicly-subsidised care homes out of business, leaving elderly people dependent on their families and straining the National Health Service severely.
The Government has authorised councils to raise taxes to meet the increasing costs of social care, but the LGA says the National Living Wage pay rate increase to £7.20 per hour for all employees over 25 could wipe out all receipts from the authorized tax increase. Alternatively, the LGA wants £700 million of new government funding for social care by 2020.
An LGA Community Wellbeing spokesman, commenting on the National Living Wage impact, said "Councils fully support proposals to introduce a National Living Wage to help care home staff receive a fair day's pay," adding, however, that social care "remains in crisis" over the cost of implementing it.
Councils say they will continue to do what they can to maintain services vulnerable elderly people need, but extra council tax revenue will not be enough to cover funding gaps and prevent further reductions in social care services.

The Hospitality Industry
Hospitality businesses will feel the impact of the National Living Wage pay raise hardest in coping with a wage cost increase 3.4 percent more than income by the year 2020, says the Resolution Foundation think-tank, which predicts price increases in retail, hospitality, and custodial health care as results of the wage hike but fewer jobs than expected likely to be lost.
The Foundation's report says most industries can absorb the costs without undue difficulty, but others, hospitality included, would find them painfully burdensome. Hospitality is at most risk, the report concludes, as many of its employees are in low-paid positions. Small businesses with fewer than 10 employees also may fare worse than most with wage costs up by 1.5 percent more than present forecasts.

Employers might withstand the pressure by raising prices, budgeting for lower profits, reducing staff hours, or foregoing new hires. Whitbread, which operates Premier Inn, the largest UK hotel brand, warns of fewer jobs and higher prices on account of the National Living Wage action.

Tim Martin, founder of JD Wetherspoon, a chain of nearly 1,000 public houses in Britain and Ireland, opposes the National Living Wage for what he sees as its harmful effect on hospitality industry pubs, bars, restaurants, and cafes. Wetherspoon already had agreed to raise their minimum wage by 8 percent to £7.29 per hour before the £7.20 National Living Wage rate went into effect. Martin says the government intervention "adds considerable uncertainty to future financial projections in the pub industry."

The British Beer & Pub Association, however, believes the effect of the National Living Wage pay raise may not be so bad as Martin predicts. The association points out some "welcome measures" for pubs in the corporation tax cut, in the Employers National Insurance cost cuts, and in the rise in the annual investment allowance as "welcome and necessary" measures balancing the increased labour expenses of the National Living Wage.
Deutsche Bank analysts say the National Living Wage will affect some businesses more than others. They acknowledge that it could stunt profits for several years but also point out that higher wages could improve employee retention and raise productivity.
Hospitality industry wages climbed naturally without government intervention in 2015. The Office for National Statistics reports that the average hospitality sector worker earned £248 per week in May 2015, a 3.6-percent growth over the past year.

Prognostication
As in the past, care homes and hotels and pubs with the most flexible, imaginative, and talented management and most industrious workers will be most likely to succeed again in executing the government's duty to oversee a prosperous balance of the burdens and benefits of economic life.

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