How can SMEs offset the cost of the National Living Wage?

A month on from this new wage being introduced and it would seem some businesses are struggling to cope with the increased cost. Some of the UK’s largest and most well-known companies have seemingly attempted to offset the 50p an hour increase against some existing benefits offered to employees. The result? Some employees are actually worse off.

If these big chains are looking to offset this cost, what hope remains for smaller businesses which may be struggling? And ultimately is it ever legal to take away employee benefits to help budget for higher wages?

Although Nick Boles MP did previously confirm that “full force” would be used if any company indicates that they are “trying to evade the spirit of the legislation in any unreasonable way”, there doesn’t appear to be any law protecting employee benefits such as free meals unless they are written into the employee’s contract.

Read more about the National Living Wage:

If the benefits are incorporated within an employment contract, they cannot be withdrawn without the employee’s consent. If a contractual benefit, provided that there is a genuine business reason for making such changes across the business, the employer can carry out a consultation process and provided a genuine business need can be established, such changes may not be against the law.

Ultimately it is important businesses find a balance between complying with the National Living Wage and offering perks to employees. Reputation and retention of a good workforce is key to any successful business. Therefore making significant cuts to existing employee benefits may have an adverse impact on a business.

In order to strike a balance, it may be possible to adjust existing benefits which are provided to employees on a discretionary basis to make the benefits performance related. This may also assist with increasing productivity.

Explaining the financial constraints on the business to employees along with providing them with the ability to work towards pay increases/benefits, may be a positive approach to dealing with the issue.

It may also be worth looking at supply contracts and thinking about trying to negotiate some of these down. Economising on your utilities might be an option, as well as looking at passing part of the cost to the customer. Streamlining the workforce by making redundancies may be a temptation to businesses but this is a risky strategy to adopt given the potential for claims (particularly age discrimination).

February showed the first decrease in numbers of new jobs that we have seen come onto the British market place. And while Brexit is getting the blame for causing uncertainty in the market place, could it not possibly have some link to the subdued growth that has been happening since slightly before this all flared up?

Chris Cook is head of the employment team at SA Law.

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