How the Living Wage can be a valuable business tool

The pending increase to the National Living Wage will be a welcome boost in remuneration for employees, but for many businesses, especially those in the services sectors, the National Living Wage will impose a significant financial burden. Some leading British businesses have already intimated that the cost of this new legislation will be passed on to customers. But could there be a silver lining to this new legislation?

If managed appropriately, businesses may not have to raise costs or, heaven forbid, reduce staffing levels. In fact, the rate increase could lead to improvements in customer service and therefore increased revenues. However, one thing is for sure – businesses will need to become smarter and more efficient, especially in relation to the way they utilise their most valuable resource – their employees. Engaging employees, increasing productivity and controlling costs will all no doubt be top of the management meeting agendas between now and April 2016.

The current state of affairs

The new National Living Wage, which impacts employees aged 25 or over from April 2016, is expected to boost the pay of approximately 6 million people. This means businesses will be giving six million workers a 7% pay increase in April 2016 and then further annual increases between April 2016 and 2020. Organisations need to start planning and implementing improved system and process now, if they are to stay ahead of the financial curve.

Supporting the new Living Wage

Paying people accurately by automating payroll processes and stopping erroneous overpayments should be a top priority for businesses. Many organisations still rely on manual outdated methods of collecting worked hours and paying staff accordingly. The problem with any process that involves manual intervention is the human error that is introduced, errors which can be genuine or fraudulent. To pay people accurately you need to automate the payroll process. By capturing time electronically, comparing hours to the planned work schedules and then automating the input into payroll you will improve efficiency and reduce pay errors. The first check list item on any Employee Engagement programme should be paying staff accurately and on-time.

The Organisation for Economic Co-operation and Development (OECD) has publicly stated that the Living Wage could weaken the competitive landscape if it is not accompanied by a rise in productivity. But if employees are engaged, spending less time talking to HR and payroll to correct errors, they will deliver greater performance, productivity and customer service.

Absences won’t make the heart grow fonder

Another opportunity for businesses to reduce costs, improve productivity and increase employee engagement is to focus on reducing employee absence rates. Unapproved employee absences have a huge impact on customer service and productivity. Absences also incur a significant burden on the other employees that are left to pick up the slack. Statistics show that replacement workers are only 70% as productive as those originally assigned the tasks. By taking simple steps to manage absences, such as having appropriate policies in place, tracking absences and the reasons for them accurately, as well as ensuring return to work interviews are conducted, organisations can reduce absence rates by 25% or more.

Laying the foundations for a productive workforce

As discussed already, employee engagement is an essential part of all future business strategy. In the current, increasingly competitive job market, it will be important for businesses to make sure staff are appropriately rewarded and recognised to keep them motivated and productive.

Offering things such as flexible working, employee self-service and self-rostering can all help to make employees feel more valued, empowered and engaged. As a result, engaged employees will be far more productive and loyal to your business, driving the increased output that will be so important in turning the Living Wage into an opportunity. Commending employees for exceptional work can be a huge boost to many people, but often businesses find it hard to identify those individuals who are performing the best. Without systems that are able to monitor employee performance, managers will always find it hard to single out individual employees for rightful praise.

Visibility is the key to everything. As the saying goes, you can’t change what you can’t measure, and it is true. If you do not have real-time data you cannot make the decisions that will enable you to maximise the performance of your workforce and your business.

Data is the foundation for driving the productivity that will make the introduction of the new Living Wage a boost to the bottom line rather than a burden.

In terms of using the new Living Wage itself as a way to improve engagement, some leading retailers have already introduced wage increases ahead of the mandatory April deadline. This move has seen them steal a march on their competitors, in a hope to retain and motivate employees but also create customer loyalty too. In one study 70% of customers said they would prefer to shop at a retailer paying the living wage, a sentiment that many retailers have recognised with a mini wage war having begun in the retail sector as a result.

An opportunity, not a cost

Beyond the immediate reaction that staff levels will need to be reduced or prices increased in order to cope with the introduction of the Living Wage, there is some real opportunity for UK business to benefit from the new legislation. By implementing improved systems and processes that focus on an organisation’s most expensive asset– its employees – it is easier to measurably boost productive time across the organisation. Better workforce management practices can not only help organisations take the new legislation in their stride, it also gives them greater control and visibility of the performance of their workforce – and equips them with the tools to enhance future growth.

By Brenda Morris, general manager UK, Kronos