Manufacturers pay above the new National Living Wage, but still fear it will add to pay pressure

EEF, the manufacturers’ organisation

New research from EEF, the manufacturers’ organisation, shows that the majority of manufacturers will see little impact from the move to implement a National Living Wage, with many already paying above the level currently proposed by Government. Despite this, however, many are still concerned about the potential for upward wage pressure and future wage rate uncertainty, while a minority warn that, for their business, implementation could lead to restructuring or job losses.

The survey shows that over half of manufacturers (52%) are paying above the new National Living Wage to all employees aged 25 and over. Of those that are not, the majority (17%) only have a small proportion of their workforce (5% or under) earning less than the National Living Wage. This suggests that for the most part manufacturers will see little impact from the new National Living Wage.

But despite this, almost half (45%) are concerned about the effect it will have on wage pressure within their businesses, as more highly paid workers seek to maintain pay differentials, while 37% say that the new National Living Wage will add to future wage rate uncertainty.

Almost a third of manufacturers (31%) say that they won’t need to take action in response to the implementation, while 37% will look to offset increased labour costs by boosting productivity. On a less positive note, however, two in ten (19%) say it could lead to reducing or restructuring their workforce.

As a result, EEF has made a number of recommendations to the Low Pay Commission designed to ensure clarity, predictability and affordability for manufacturers going forward. Central amongst these is the recommendation that the National Minimum Wage and the National Living Wage should become one and the same.

Tim Thomas, Head of Employment Policy at EEF, says: “The positive news is that, when it comes to the National Living Wage, affordability isn’t such a concern for manufacturers as the majority are already paying above this level. However, it is unlikely to prevent companies from feeling nervous about the broader implications for pay and particularly the fear of increasing wage pressure as higher paid staff seek to maintain current pay differentials.

“It is key for Government to listen to these concerns and ensure focus on clarity, predictability and affordability. This will reassure manufacturers that wage costs are not going to spiral unexpectedly and that a level of flexibility will be built in to protect them in the event of economic downturn. By working together, industry and Government can hopefully mitigate the risks and continue to support growth.”

EEF’s key recommendations:
1) There should be one system for setting the National Minimum Wage and National Living Wage:
- The timings of the NLW and NMW should be aligned
- Rules around compliance should also be aligned
- The Low Pay Commission should be responsible for recommending both rates.
2) The key principles for setting both the NLW and NMW should be predictability and affordability:
- A more graduated approach towards 60% of average earnings is required going forward
- Flexibility is needed in case of a renewed economic downturn.
3) The apprentice rate should be abolished:
- The apprentice rate structure remains complicated and should be abolished
- The new apprenticeship levy will essentially remove age funding brackets which may impact on the age at which apprentices are recruited and pay.