The changing wage
The current ‘living wage’ in London (calculated by the Mayor for London’s office) is £9.40 an hour, and the figure outside London is £8.25 (set by the Living Wage Foundation), also substantially higher than the National Living Wage of £7.20, which is only payable to people over the age of 25.
The low-paid sectors of retailing, hospitality, catering and caring, are the sectors which are most affected by the National Living Wage and women are more affected by the rise in lowest rates than men. Interestingly, the gender pay gap reduced after the National Minimum Wage was first introduced in 1997. These sectors employ large numbers of people; the pay rates have traditionally been low, and businesses in these sectors may have thin profit margins.
The National Living Wage will further be increased to £9 in 2020 and businesses will need to prepare for this additional rise. Many may be able to accommodate this rate without it affecting their reward structures elsewhere in their company. However, there is always a concern that a rise in the lowest pay rate could trigger pay claims from others in the organisation – particularly those paid just above the new minimum rate. Companies may find it beneficial to move to pay structures which use pay ranges, such as ‘wage for age’ type pay scales for younger workers, rather than single point or spot pay rates (as currently used by some large retailing firms) so that they can effectively manage the introduction and development of the National Living Wage to help mitigate the costs. The fact that the National Living Wage only covers the over-25s will tend to make this form of pay structure more popular as employers can progress young workers from the lower National Minimum Wage to the National Living Wage depending on their age.