The rise in the NMW in April this year – based on the recommendations from the Low Pay Commission – will see 21 to 24-year-olds minimum pay grow 6.5% to £8.20 per hour, while the National Living Wage (NLW) for over 25s will increase 6.2% to £8.72.
Laura McLellan, director in the employment team at law firm Walker Morris, said food and drink businesses would suffer unintended knock-on effects from the increases to the NMW and NLW as they sought to meet the cost in a sector where margins were already very tight.
“The employer has no choice but to meet the NMW rates and that means the cost has to be found from somewhere,” said McLellan. “This could result in the removal of premiums and employee benefits to redistribute the money into the required higher hourly rate or, even worse, job losses.
Attract new talent
“Where employers no longer have the ability to pay over the NMW rates, how do they attract new talent when they are all paying the same? How do they attract night workers when night shift premiums are being sacrificed to feed the hourly rate?”
McLellan voiced concerns that manufacturers would struggle to offer above-average rates of pay for line manager roles as they struggled to pay the higher rates for junior employees.
“What about workers under 25?” she continued. “Often, employers tell us they want to pay them the same as those over 25, but the increasing levels of the rates is preventative of them being able to offer anything other than what they are legally required to pay.”
Impact to entry level positions
Despite this, the Food and Drink Federation (FDF) said many of its members already paid their employees more than the NLW and NMW and that the increase to both would only impact entry-level positions.
“However, members have raised concerns about the impact of repeat, above-inflation rate increases on maintaining wage differentials and, in some instances, overall business viability,” said an FDF spokesman.
“Food and drink manufacturers also have concerns about the cumulative effect of a further rise in the National Living Wage, a poorly designed apprenticeship Levy and the likely disruption that will be caused by Brexit. As a result, food and drink manufacturers may be forced to push up prices, while retailers will continue to look for more competitive margins.”
John Dorney, Director in law firm DWF’s Employment team, commented: "Food and drink manufacturers are again turning to face the annual issue of changes to the National Minimum Wage. However, from April this year the position is more problematic in that there will be unprecedented increase across the board by which, for example, 21-24 year olds will enjoy a 6.5 percent increase from £7.70 to £8.20 an hour, and there will be a 6.2 percent increase for those 25 and over from £8.21 to £8.72 an hour.
"This additional cost, plus consequential NIC and pension contribution increases, will of course therefore need to be met. As always, the options remain for manufacturers to absorb some of these costs from their "bottom line" profits, as well as seek further efficiencies by way of streamlining processes and / or investing in new technologies (both or which could lead to head count reduction) or pass the costs onto the wholesaler/consumer.
"Naturally, the solution will be specific to the particular manufacturer and sector but, given that over recent year's most major businesses have and continue to explore the efficiencies route, we would anticipate that the immediate significant savings required may not be possible and so the costs will be passed down the supply chain to, ultimately, the consumer."