Good news rarely makes great headlines. Much of the media coverage on the impact of the Government’s National Living Wage proposal has focused on highlighting the potential negative impact of the changes for both employers and the economy, rather than exploring what it really means.

Please note this article was published before OEE Consulting and gobeyond joined forces to become Gobeyond Partners.

What is Government’s National Living Wage?

The Government’s ‘National Living Wage’ is quite separate to the Living Wage Foundation’s definition of £8.25/hr (£9.40/hr in London) – which is a recommendation calculated on the actual cost of living, and can be voluntarily signed up for by employers.

The Government’s increase from April 1st 2016 is based on median earnings, and will see an increase of the minimum wage from £6.70 to £7.20/hr, although only for those over 25 years of age.

Reports predict this will lead to price rises, higher delivery costs, and more self-service, particularly as retailers look at ways to reduce costly staff against a backdrop of a poor performing high-street.

The British Retail Consortium estimates the increase will cost the economy £3bn by 2020 and The Times has calculated the new Apprenticeship Levy will be around £400m a year. But these headlines can overshadow the positive actions of some organisations – for example, Tesco are announcing higher hourly rates than the Government’s Living Wage.  So what should we believe?

The True Cost of Employment.

In reality, no one knows what the financial impact of these changes will be at a macro-level. Nonetheless, does this unrelenting focus on costs entirely miss the point? Do all businesses really treat labour costs as a line on a spreadsheet to be managed down?

Yes, labour costs impact the bottom line, but the true costs of labour are far broader than just the salaries. If employees do not believe they are earning enough to provide a basic standard of living, you can guess the impact on attrition rates.

This attrition cycle leads to additional recruitment (and its accompanying fees), induction, training, and the higher health and safety risks of new employees. All of this has a clear financial cost, but it also requires both time and energy, and has a direct impact on productivity and quality.

Getting what you pay for.

By reversing this situation, it is entirely possible to reduce total labour costs by increasing the effectiveness of recruitment, paying well, and investing in people. These factors can improve staff retention, engagement, and advocacy, which in turn can increase service quality (and decrease the cost of quality). You get what you pay for – and that is no different with people.

At its most simple, the aim of National Living Wage is to ensure employees earn enough to provide a basic standard of living. However, from the employers’ perspective it’s more complex: pay is a key element of employee motivation, ‘living the brand values’, creating staff advocacy, and delivering consistency. In many sectors which are highly competitive and increasingly commoditised – such as retail – will it not be the people that help to differentiate the brands?

Investing in human capital.

As we embrace technology and start to experiment with automation, and now robotics, it can be all too easy to become efficient, effective, but wholly impersonal.

Digital self-service is increasingly automating the simple tasks, but what remains are the complex tasks, the queries and the high value services. This is where your people come to the fore and help you to differentiate yourselves from the competition. Exceptional service is something that is becoming increasingly ‘remarkable’, and the human touch is a major contributing factor.

Employees that deliver this service need to be found, trained, and retained. In turn, their experience and understanding of your brand and business can help you retain more customers, create brand advocacy, and can even help reduce the cost of customer acquisition through referrals. Furthermore, costs can often be reduced as experienced, motivated employees require less management.

It would be naïve to say that the National Living Wage won’t bring pressure on labour costs for many employers. However, it is time to remind ourselves that people are the most valuable asset in any business, before we decide that we can’t “afford” the living wage

Find out more about what it’s like to work at OEE Consulting, see our current opportunities or contact us.