What does the Living Wage mean to Industry?

In our previous article we looked some of the advantages and disadvantages of the Living Wage, now we are looking at some more specific issues the Living Wage could bring to industry.  The living wage will put pressure on industries where traditionally wages are comparably low.

One such sector is the Care Home industry. The introduction of the living wage will have a significant effect on care homes where traditionally roles are fulfilled by relatively low paid staff and the reduction in funding has left gaps for skilled staff.  In addition to the direct costs associated with the Living Wage, staff numbers cannot be cut, due to rightly imposed regulations on staff-to-patient ratios. As a result, it is expected that the funding gap once the Living Wage is implemented could be as much as £2bn. Staffing is the largest cost for care homes, amounting to roughly two thirds of total expenses.

The industry has come under pressure in recent years due to reports of inadequate care and even abuse of patients, however filling rotas with competent staff is not an easy task. NHS training places for nurses have been reduced in the past 2 years, and currently no programme exists to enable care workers to train within the care homes themselves to become qualified nurses. The industry is therefore failing to attract enough young and career driven trainees, establishments are increasingly forced to rely on more expensive agency workers to fill the gaps, increasing the overall staff costs.


Disqualifications – Some more effects of the living wage

As companies struggle to survive they will inevitably try to cut corners or at worse break the law. The temptation to employ illegal immigrants to save costs will become more of an issue.

A resourced stretched Nursery owner was banned for six years after failing to pay staff minimum wage. Bottom of Form

Joanne Ward, aged 43, underpaid 12 employees at her nursery, Cygnets to Swans in Whittaker Lane, dating back to April 2010 and totalling £11,789.

The amounts underpaid to each employee range from £2.52 to £3,821.17.

Although Ms Ward had failed to pay staff the minimum wage, she received personal benefits from the company, totalling £157,601 in the form of wages, dividends and through an overdrawn directors’ loan account.

In a report by the Insolvency Service, following visits from HMRC national minimum wage enforcement officers in 2012 and 2013, it was discovered that the workers had not been paid in line with the obligations under the National Minimum Wage Act 1998.

The company was issued with a £5,000 penalty — the maximum fine at the time — which remained outstanding at the date of liquidation on October 8, 2015.

On February 3 this year, the Secretary of State accepted a Disqualification Undertaking from Joanne Ward, effective from February 24, for a period of 6 years.

The matters of unfitness, which Ms Ward did not dispute in the Disqualification Undertaking, were that: “I caused Cygnets To Swans to engage in practices contrary to the National Minimum Wage Act 1998 by failing to pay employees the national minimum wage, while continuing to take personal benefits from the company.”

Robert Clarke, group leader at Insolvent Investigations North, said: “The Insolvency Service rigorously pursues directors who break employment laws. Not paying staff the national minimum wage is a clear breach of a director’s duties.

“The public has a right to expect that those who break the law will face the consequences. Running a limited company means you have statutory obligations as well as protections, and this should serve as a warning to other directors who are tempted to underpay staff.”

Ms Ward gave an undertaking to the Insolvency Service not to manage or control a company for six years from 24 February 2016 until 2022.

In conclusion the living wage will initially appear beneficial to the lower pay employees but the knock on effect may run deeper. Whether increased wages in the pockets of consumers are enough to offset the overall economic effect remains to be seen.