What will the effect of the living wage be on business?

The national minimum wage is to be replaced by the National Living Wage on the 1st April this year, which by now should not be a surprise to anyone reading this article. What effect will this have though? The national minimum wage is currently set at £6.70 and the living wage will be introduced at £7.20 a 50p increase per man hour to the payroll, or is it? Increasing the basic wage has a knock on effect that increases the payroll by more than just 50p. The increase will have an effect on ENI contributions, holiday pay, employer and public liability premiums, so the net increase to the employer is actually more than 75p an hour which represents on average 11.25% increase to the payroll, for industries that have traditionally paid minimum wage, such as hospitality, care industry and of course the cleaning industry.

These sectors are generally the ones that work to the tightest profit margins in a challenging and competitive economic market. The increase will bring other challenges, if you increase the salary of the operatives, the waiters, bar staff, and care workers etc., then their supervisors will feel underpaid as the margin between the two closes, then the margin between the supervisor and the manager closes also and where does it stop. The dilemma for these businesses (and I include myself in this) is do you absorb the cost and risk the business failing or do you pass on the cost to your customers, resulting in a spiral effect of increase costs across all sectors? Our operatives carry out in excess of 16,500 cleaning hours per month the increase will add £148,000 to our annual payroll, without passing it on we would very quickly go out of business.

So who are the winners, well of course the staff currently on minimum wage will benefit and I have no issue with that at all, HMRC are the biggest winners here as there are currently approx. 6million UK workers paid minimum wage and the increase cost to business nationally is £12.4 billion. The benefit to the treasury is an additional £6.6 billion in revenue. (Figures taken from KPMG economic impact assessment). This is just the beginning we can expect increases in the living wage of at least a further £1.80 per hour over the course of this governments term to 2020, a further 25% increase.

Outsource or In-house?

Many businesses will be looking to reduce costs to counter the effect the living wage may have on their business. Industry analysts IFMA (The international Facility Management Association) research shows that in-house cleaning costs an organisation nearly 25% more than contracting to an outsourced contractor. When considering the costs in- house cleaning will require you to pay sick cover, holiday cover, maternity cover, overtime and you are unlikely to be able to purchase materials and chemicals at the price a contractor can. Machinery costs can be expensive also, which a contractor can purchase with trade discounts, other costs to your business include insurance increases, payroll, uniform, training, recruitment time and sometimes fees, health and safety documentation and training, CRB checks, not to mention the cost of someone in the business to manage the process.

The above costs are often over looked resulting in a false economy to the business. On the flip side the benefits far outweigh the in-house option.

You can focus time saved on your core activity

Invest the saving on your core business

Reliability and stability

Higher standard of tasks performed

Premises that always meet your clients and staff clean and hygienic and give the right impression.

A well cleaned office is proven to improve morale among staff and cut the number of staff sick days.

Access to a one stop shop for wider services (window cleaning, carpet cleaning, washrooms ……)

Slips, trips and falls in the industry can be high which would save on your insurance premiums.

Constant monitoring of the standards and quality control.

Professional and experienced advice on hand on the maintenance of your fabric, fixtures and fittings.

Whilst the introduction of the National Living Wage will inevitably see increase cost to business, employing an in-house approach will still mean having to pay the operatives the same rate as the contractor and you lose all the benefits and savings by doing so.