Planning for the National Living Wage increase

Planning for The National Living Wage increase - Centric HR

With the National Living Wage set to rise by 6.6 per cent from the 1st April 2022, rising from its current rate of £8.91 per hour, our article explores what this means for SMEs and how employers, particularly smaller companies, can plan for these changes.

This ​rise in NLW to £9.50 per hour is set to impact employees aged 23 or over and is predicted to give full-time employees an extra £1,000 a year. Similarly, the National Minimum Wage is also expected to see an uplift – increasing from an £8.36 hourly rate to £9.18 for those aged 21-22.

The pay increase will be well received by all applicable employees, as it will improve the morale and commitment for many employees after a particularly difficult 24 months in employment, but as a business owner, profit margins will be squeezed, and this cost will need to absorbed.

Some employers may find this legally imposed increase difficult to cope with, as a higher wage would mean lower profit margins, costs which would undoubtedly be passed onto the customer through higher prices, or even letting go of staff due to not being able to afford the same employee numbers. We can support you to consider how best to absorb these costs and to ensure a positive outcome for all, including:

Workforce planning

Workforce planning is the process an organisation uses to analyse its workforce requirements and costs to determine the steps it must take to prepare for future staffing needs. These factors may determine whether future skill needs will be met by recruiting, by attracting and managing talent, training or by outsourcing the work. It simply means getting the right number of people, with the right skill set, for the right salary to deliver the most efficient solution over a planned period of time. This is aligned to the organisation’s overall business objectives and their long-term vision.

Workforce costs forecasting

This enables you to fully understand your workforce costs over a period of time.  This can help you maximise performance with accurate forecasts that will predict demand and costs against existing profit margins so that you can see if the increase in workforce costs will affect your business negatively.  You are then able to measure these forecasts against key performance indicators to identify areas of improvement and scale your workforce accordingly.

“Failing to prepare is preparing to fail” and workforce planning and forecasting enables your business to determine skill requirements, evaluate demand, assess labour supply, understand workforce needs, and develop a strategy to move forward – whilst understanding the costs and impact on your business.

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Working smarter

Working smarter by increasing efficiency without compromising on quality, could overall save your business money. Simple changes like evaluating your work methods and structuring your working day more efficiently, will in turn save time and money.

For example, buying and implementing a system to help you manage your resources and time will help to reduce administration and repetitive tasks.  This can instantly identify easy quick wins on workforce efficiencies and planning, therefore enabling your business to run smoothly and become more cost effective.

We must recognise that what is good for the employee, can also be good for the company – however just because the hourly rate goes up does not mean that attraction and retention will become easier as your competitors will also be paying more!  So, thinking about the whole employee experience, job satisfaction, development and reward package is what will attract quality candidates – not all of these have to cost you money.

As staff feel more valued, employee engagement increases, quality of work improves and absenteeism will fall. All of which are positives to employees and employers alike.  This is the stuff that makes you stand out as an “Employer of Choice” and gives you competitive advantage.

For further information on the National Living Wage increments and how you can get the very best out of your employees to help your business, please contact us here.

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Picture of Sandra Berns

Sandra Berns

Centric HR was founded by Sandra Berns, a confident and versatile Human Resources and Organisational Development Practitioner with 25 years demonstrable experience and a Fellow of the CIPD. Sandra has both Operational and Strategic HR expertise across Public and Private sectors and has assisted senior teams in meeting challenging workforce objectives in many corporate environments.