How will the introduction of the National Living Wage affect the Transport & Logistic Sector?

Posted on: May 27th, 2016

In April this year, the Government introduced a premium for workers aged 25 and over, known as the National Living Wage (NLW). This is over and above the National Minimum Wage, which will remain in place for individuals under 25.

The current rate is £7.20 and the National Living Wage is set to rise to more than £9 by 2020.

The impact of this increase is wider than at first glance. In addition to the 50p increase on salary, there may be an increase to other related benefits (for example employer pension contributions); there is the discontent with other staff higher up the scale who want the previous pay differentiation for different roles/seniority to be maintained.

This is a significant jump in costs for employers across the country and many are anticipating a cut in employment levels in labour-intensive industries such as transport and logistics.

Many employers have expressed concern that the new NLW is too high and will cost jobs. The Prime Minister, however, has focused on enforcement by stating that the fines for non-payment will double, hitting employers with a penalty worth 200 per cent of unpaid wages, up to a maximum of £20,000 per underpaid worker. Employers that fail to pay face disqualification as company directors for up to 15 years. The government has established a new HMRC team dedicated to pursuing the most serious cases of employers deliberately not paying the NMW and NLW. So it is imperative that companies get it right.

Since the introduction, we have seen in the news that some employers are making cuts to staff benefits to minimise the impact of the pay increase.

B&Q, John Lewis, Tesco and Zizzi are just some of the companies which have cut back on staff perks such as bonuses and paid breaks, although they have denied that the changes are as a result of the NLW.

Clearly these types of changes are going to result in complaints from disgruntled employees. In order to avoid employee relations issues and potential claims arising, you will need to consider your approach and any proposed measures carefully (and the legal requirements for implementing such measures), particularly given the potential repercussions of getting it wrong.

Essentially it comes down to whether the benefit is a contractual entitlement (in which case you cannot make a change without going through a formal process) or whether it is a discretionary benefit (in which case you can legally make the change but would still need to consider the impact on morale).

Its clear that the effect of the National Living Wage is going to reverberate in certain industries, particularly the transport and logistics sector, for some time to come.

If you have any questions about the impact of the National Living Wage on your organisation then please contact Amy Richardson in our Employment team.