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Whether an employee, employer or business owner, we all eagerly await the budget updates, and it seems in recent times, we often watch it with gritted teeth or hiding behind our hands.
The latest budget will impact people in a variety of ways but in this short blog we will focus on how the latest announcement of an increase in minimum wage hits businesses, particularly in the retail sector.
National Minimum Wage (NMW) is due to increase again from April 2025. When we see an increase in NMW, for many businesses this normally means a few instant considerations:
- Increased labour costs
- Reduced profit margins
- Job losses or reduced hours to compensate for the increased costs
- Reduction in investment in businesses
With the increase in NMW, the retail industry is likely to have to pay an additional estimated £2.3bn via NI, plus the 6.7% increase in the National Minimum Wage and 6% jump in National Living Wage will add another estimated £367m onto retail employers’ wage bill, according to sources.
Some initial reaction of this news has been:
Stuart Machin, Marks & Spencer boss was not happy stating it was “a tax with no link to profit which hits bigger employers like us and our smaller suppliers.”
Another leading figure said:
“Yet another case of piling taxes on an already overburdened industry – a decision which will reduce investment in shops and jobs.” They continued to say “Retail employs 3m people and 2.7m more across supply chains, driving investment in jobs, communities and, ultimately, economic growth, right across the country. For a low margin industry, today’s budget will hit hard, with the odds now stacked firmly against growth and investment in the short term. These new costs also risk increasing the prices customers pay at the till.”
Like with every debate around the budget, there are 2 schools of thought with some seeing this as positive change, with influential leaders stating that wage rises:
“Should feed into household spending and, if inflation remains manageable, raise living standards.”
Also worth noting, for some this increase is not enough, stating:
“While we welcome a pay rise for the lowest paid and the lowering of the age that the adult rate applies, today’s uprating shows that the Government has missed the opportunity to provide the help workers need to get through the biggest cost of living crisis in a generation.”
How to react?
One question that has been cropping up across the retail industry since the announcements are how should retailers react and how will they retain current / best staff.
Often what can be tough for retailers to hear, is that the salaries within the industry have often been far behind many other sectors for a variety of reasons. This in itself would not necessarily be the issue, however the generations growing up in today’s world, face an incredibly expensive UK to live in. Plus, they have full exposure to what other industries are paying. Therefore, creating the question in their mind as to “why would they want a role within retail” if they are deemed to be underpaid or paid “just enough.”
So, how do you solve this problem. The reality is, not very easily and could mean a complete overhaul of wage structure and business price brackets. The first thing to address, would be looking at loyal and current staff. The people that the foundations are built on. The people that bring repeat customers and gain you five-star reviews. These people are gold dust and deserve to be rewarded so. Take a look at some of our previous articles discussing these ideas:
It might be worth considering that with an increase in wages for these staff, that they would be happy to take on more responsibilities, rather than needing to justify a whole new salary for an additional member of staff. In the past, employers have often been frustrated where people aren’t pushing themselves regardless of salary increase, however ask yourself, being in the UK right now, nothing comes for free, so why should there efforts. Quite simply, people need to be rewarded for what they do and are worth, if not, they will look elsewhere. Harsh, we know but that is the hiring market of today.
Another aspect to consider is the bigger picture. All too often, retailers can offer roles for the here and now and are often too late in offering progression. Keep in mind the notion, that the more you expect from this person, the more they will expect from you. Ensure your back-office processes for progression, development & training are tip top, make your retail environment somewhere people want to be and can see a long term future in.
The retail industry often offers the individual a very low holiday allowance compared to the wider market and few additional benefits. Could you make working for you, more appealing in other ways outside of base salary, again, this is another topic we have covered in another article:
Other aspects to consider:
- Businesses are worried about increasing their prices in the current economic environment, however this is also a time when price increases can be justified.
- Businesses in retail, hospitality and catering might have to consider reducing the hours of their staff or reducing the number of product offerings in order to offset against increased wage expenses.
- Now is the time to analyse and identify any loss-making areas of the business and ask why are you still investing in this.
- Can technology help. Although, introducing technology can bring a one-off cost, technology can take on traditional tasks performed by staff, such as self service machines replacing servers etc.
Unfortunately, right now, there aren’t many answers that don’t involve higher costs and more investment but what can be done is creating a long-term strategy around what to do, as opposed to a knee jerk decision that could see costs spiral out of control.
DB Charles not only specialise in day-to-day recruitment but also in strategy around operations and hiring so please get in touch if we can help.
We know how hard times are in the UK right now and we are here to weather the storm with you.
The big reality of this situation is there is no answer to each businesses / industries issue they face.
Decisions, hard ones will need to be made, however everyone is in the same boat and faces the uncertainty of the years to come.
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