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National Living Wage and the Retail Sector: What is the Impact?

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According to news this week, around a third of employers in the retail sector are planning to limit the number of new jobs they create as business owners struggle to keep up with the new national living wage (NLW).

Introduced in April this year, the new NLW requirements mean employers must pay employees who are 25 years of age and above at least £7.20 an hour. But this is having consequences in the retail sector, as increased pay outs in staff salaries are cutting into profit levels.

So what are retailers doing to avoid seeing a drop in profit, and what should they consider when making hiring decisions?

Some retailers – notably Café Nero – are amending their previously favourable terms and conditions for employees, removing the offer of benefits such as a free staff lunch. While slashing costly staff benefits may save some extra money, it’s likely to have a negative impact on overall morale and employee satisfaction. If they don’t keep a careful eye on their money-saving measures, retailers may struggle to maintain retention levels of valuable staff.

There may also be a shift to organisations trying to recruit younger people – those under 25 who don’t qualify for the higher rate of pay – though, as age is a protected characteristic, retailers legally cannot do this.

An issue also arises with pay differentiation. Often, the retail sector will have staff, supervisors, team leaders and various levels of management – this may create an issue if the NLW puts the basic pay rate up too close to the next tier, meaning that people may not want to take on additional responsibility if the pay differential is not perceived to be worth it. This could lead to a stagnation of career progression, and retailers will have to offer generous incentives to encourage and motivate staff to continue to take on additional responsibility.

The most important factor in attracting, and retaining, staff in the retail sector in light of the NLW will be how organisations promote their overall employment package and experience.

Retailers may need to not focus on the pay element, but on the overall experience provided and potential opportunities for staff that they offer – progression, development, wider benefits. Internal communications will also prove fundamental – where there is negative external press suggesting that retailers are downgrading benefits to cover cost, an organisation’s culture and overall morale will play a crucial role in employee satisfaction, and productivity – despite what they’re being paid.

Esyllt Green, Employment Associate & Cathryn Foreman, HR Consultant