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Minimum wage leaves its mark

The National Minimum Wage (NMW) - the hourly rate below which adult workers in most sectors of the British economy must not be paid - was once a fiercely debated political topic that is now an accepted part of daily employment. 

The NMW is enforced by HM Revenue and Customs, which requires employers to pay at least the NMW and to maintain records that demonstrate compliance. Companies falling foul of this are committing a criminal offence and, along with paying arrears, can be fined twice the hourly rate per day per worker that they fail to pay NMW. They can also be prosecuted under one of six criminal offences, which carry a maximum fine of £5,000.

The NMW changes again on 1 October 2010, rising 2.3% from £5.80 per hour to £5.93. Since its introduction in 1999, it has risen from £3.60, a total increase of nearly 70% or around 6% per annum on average.

Should the NMW be changing now? While few would argue against a moral obligation to ensure people are not living in poverty, many businesses are questioning the benefit and logic of the increase at this time. Businesses in the waste and recycling sector are still looking for cost efficiencies, with some seeking to agree pay freezes or even reduction exercises to manage their wage bills.

In contrast, Low Pay Commission chair David Norgrove recently said: “The UK economy is on track for recovery, but the speed and strength of that recovery are unclear. We have recommended an increase in the adult rate of the National Minimum Wage that balances the needs of workers against the challenges that remain for businesses”.

In the waste industry there is a reliance on labour that sits at the NMW level, due in a large part to the labour intensive positions that we rely on within the recycling and processing sector. With this in mind, there are the wider implications and underlying issues facing all businesses in the sector as a result of this increase.

Aside from the obvious increase in direct wages, there are also related costs to consider. Employers will also need to factor in the related increases to employers’ national insurance payments and holiday pay accruals, all adding additional cost to the direct employment. 

The key question that employers will need to consider, however, concerns the wider work force, many of whom will be working for pay rates over and above the new NMW already. The NMW increase will mean some labour representatives and employees will undoubtedly be pressing employers to reflect the rise across all job grades and, as a result, the increase at the lowest skilled level may be a catalyst for a wider review of pay and terms and the risk of a ‘concertina’ effect. 

In theory, what starts as an increase to help the low income workers will become a much wider debate within waste businesses that could ultimately lead to enforced increase to the majority of companies’ pay scales at a time that businesses are rightly trying to tread carefully through the fragile recovery period following recession.

So, while the Low Pay Commission is focusing on keeping low earners above the poverty line, its timing may have inadvertently forced an unwelcome issue for businesses in our sector to resolve and the potential of a situation that could see jobs being cut. So how should the industry respond?

The consideration of whether or not to pass on this increase throughout the work force is an interesting one that requires thoughtful and holistic consideration. The obvious starting point for all businesses will of course be financial: can we afford it? Can we derive savings elsewhere by utilising more flexible labour arrangements?

The cost of not improving the pay scales further up the line will not only have financial implications, it may be as much a motivational issue than anything else. Consideration should also be given to the labour competiveness that still exists - in some skills sets, employees are willing to move for small increases in basic pay.  Waste and recycling businesses need to ensure they are offering a comparable deal by benchmarking their pay and terms within the sector to remain competitive.

Appealing for a higher minimum wage on moral grounds may be politically attractive but this is also fraught with practical problems, especially for employers in the waste and recycling sector as users of intensive labour. In reality, the NMW reviews are coming, so being as prepared as possible for the change is key.  Ensuring employees at all levels recognise the full value of their benefits package and opportunities available to them will also negate the sometimes unreasonable expectations that a NMW increase can create.

Nathan Bowles is chief executive of Smart Solutions recruitment

Advice on the minimum wage is available atwww.hmrc.gov.uk/nmw/

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