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How Will the National Living Wage Affect the Hospitality Industry?

The new National Living Wage will come into effect in the UK from April 2016.

The new National Living Wage will come into effect in the UK from April 2016. This government legislation should not be confused with the Living Wage, which is an independently calculated wage scheme which companies can sign up to voluntarily.

After April of this year, employers will be able to pay their employees no less than £7.20 if they are over 25 years of age. This is a 50p rise compared to the current National Minimum Wage of £6.70, which will still apply to adults under 25 years old.

Industry Worries

The National Living Wage is set to be significantly lower than the Living Wage Foundation’s recommended rates of pay. And yet, many in the hospitality industry worry that the increased wages will negatively impact businesses like pubs and restaurants.

Martin Couchman, Deputy Chief Executive of the British Hospitality Association, warned of a “considerable” impact on the hospitality sector. The concern is that 30% of the industry’s costs go into employee wage packets, and the majority of staff in pubs or restaurants perform the unskilled labour roles (waiting, cleaning, washing, etc.) that often pay at minimum wage levels.

Couchman suggested that employers may simply look to take on staff under 25-years old in order to avoid a wage bill increase. A Resolution Foundation study forecasts a 3.4% rise in the wages paid in the accommodation and food services industry – the highest increase of any UK industry.

The problems caused by the new National Living Wage look set to grow as the decade ages. The pay-rate is expected to exceed £9 per hour by 2020, in only four years’ time.

 

Counting the Cost

It is difficult and speculative to try and bottom out the effects of the rise with hard numbers. As with many government policies, the rise in wages is part of a complex web of factors that are impossible to accurately predict

On face value, however, if contracts, employment rates, etc., don’t change before April, the UK will need to collectively find an extra £4bn to pay minimum wage staff. If we take the hospitality sector’s share of this cost and substantiate it in terms of the cost of full-time National Minimum Wage job contracts, it would result in a loss of over 200,000 jobs.

Things will certainly not be so straightforward, however, as restaurant operators will seek to lower expenses by cutting employer benefits (such as giving workers discounts on food), employing younger staff and raising prices.

Another theory is that the wage rise will give consumers more money to spend on dining out, prompting a small sales boom which will end up securing industry jobs.

 

Restaurant Property are London’s foremost restaurant property agents. From pubs to fine restaurants, we understand the changing needs of the hospitality industry. If you are a hospitality operator looking for the perfect restaurant for sale, contact us today on 020 3666 0305 for expert assistance in acquiring your next location or email enquiries@restaurant-property.co.uk.

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