The national living wage (NLW), which came in last April, marked an unprecedented 11% increase in the national wage floor in a year, from £6.50 last April to £7.20 for over-25s. A survey by Nursery World showed employers would use a diverse range of models to implement what is effectively a rise in the minimum wage, the most likely being increasing salaries of just those staff who receive below the NLW (20 per cent of respondents). This indicates that, for some businesses, working out a fair long-term pay strategy may have been lost in a rush to comply with the deadline. Working out what was affordable versus the need to maintain differentials left many finance directors scratching their heads. And, even if a business can afford to keep the differentials, there are other nuances to consider. As one director told Nursery World in March, ‘If there were equal increases across the board for all staff, the top end tends to be less well off from salary inflation, so you get senior staff leaving. We don’t know yet how we are going to do it.’
The NLW will rise again in April next year. It is targeted to reach 60 per cent of median earnings by 2020 – current forecasts put this as being around £9.20 an hour.
This means that between April 2016 and April 2020, the sector will have to bear an increase of £2 per hour per qualifying employee – or an average of 50p (7 per cent) per annum.
On top of this, there is also an increase in the national minimum wage (NMW) to consider. This applies to under-25s and goes up this October to £6.95 an hour for staff aged 21-24, and to £5.55 for those aged 18-20.
The Low Pay Commission is expected to announce the next increase in both the NLW and NMW this autumn. The increases will take effect simultaneously from April 2017.
Because of this, many settings may have to rethink the traditional September fee rises. Keith Appleyard, treasurer of Fiveways Playcentre in Brighton, says, ‘Organisations that set their prices in September for the year ahead in cognisance of the October increase now have to consider another 2 per cent or so increase in April 2017, and whether they increase prices in September 2016 in anticipation.’
The Resolution Foundation estimates that by 2020, around six million employees across the UK – 23 per cent of all employees across the workforce – are set to be affected by the NLW, though not all of these will receive a direct pay rise. It also points out that the impact will not be felt evenly throughout the UK as it will depend on the average wages of each region.
An analysis carried out by the think tank found that in Sheffield, 28 per cent of employees are set to receive a pay rise – that’s more than 80,000 employees. In London, however, just 7 per cent of employees would receive a pay rise, and in Oxford just 5 per cent.
SCENARIOS
The scenarios below, modelled for Nursery World readers by Mr Appleyard, consider the costs of different approaches to paying the NLW, varying from 3-7.5 per cent wage rises for all, or a proportion of, staff. Calculations also take into account employers’ NI contributions (but not auto-enrolment).
Acess the full workings for each scenario
A2: All staff receive the same percentage uplift (5 per cent) 10.2 48p £5.16
A3: All staff receive the same percentage uplift (7.5 per cent – to get staff from £6.70 to £7.20) 15.5 72p £5.40
B: Only eligible staff paid below the NLW are given increase (20 per cent of staff getting increase of 7.5 per cent) 2.3 11p £4.79
C: All staff paid below the NLW are given an increase of 7.5 per cent (20 per cent) and further selected staff (50 per cent of all staff)are given an increase of 3 per cent 5.5 26p £4.94
D: Salary levels for all staff increased in two bands: those 20 per cent paid below the NLW get a 7.5 per cent uplift; all other staff get a raise of 3 per cent 8 37p £5.05
Assumptions
Staff pay bill is £100,000
Funded places accounts for 50 per cent of places
Parents’ fees account for the remaining 50 per cent
Funded places rates have increased from £3.95 to £3.97 per hour (0.5 per cent)
Cost of delivering childcare is £4.68 per hour for three- and four-year-olds (break-even costs from data by Ceeda, commissioned by the Pre-School Learning Alliance and published in Nursery World in December 2015).
Employers’ national insurance contributions are included, pension contributionsare not.
For full workings for each scenario, see http://bit.ly/29R7Q9H
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