The National Living Wage – what does it mean for hospitality and retail?

The government’s introduction of a National Living Wage is likely to have significant implications for the way hospitality and retail businesses recruit and retain their staff

The announcement on Wednesday came as a surprise, perhaps because few expected a Conservative government to interfere in the labour market. But, in reality, their focus on work rather than welfare is consistent with their policies over the last five years, whilst in coalition.

Despite the severity of the economic turndown in 2008, UK unemployment has bounced back much more quickly than in other EU countries. One of the reasons for this has been that many of these newly-created jobs have been in low-paid sectors like hospitality, retail, care and cleaning.

As a result there has been an increase in so-called ‘in-work poverty,’ with more people receiving tax credits in employment than those unemployed. The large proportion of these jobs has also been seen as an underlying factor in the UK’s stagnant productivity levels.

The phased introduction of a £9-per-hour wage by 2020, whilst falling short of a true living wage, is still a significant step up from the average hourly pay for many operational jobs roles in hospitality and retail. For example: chefs (£8.62); waiting staff (£6.75); bar staff (£6.74); retail assistants (£7.91) and cashiers (£7.68).

So what might hospitality and retail businesses do as a response?

There are two likely scenarios when it comes to people management. Some businesses are likely to place even more emphasis on a young workforce (aged 16-24), as they will be exempt from the new National Living Wage. Already, 34% of the hospitality industry’s workforce is aged 16-24.

The first problem with this approach is that the UK’s ageing population means it will gradually become harder to recruit. The second is that by recruiting students in such large numbers they are, by their very nature, largely transient. This has a negative impact on staff retention making it difficult to develop a skilled workforce. Ultimately, performance suffers.

The other approach is an increased focus on engaging and retaining staff. Businesses will want to ensure they are getting greater returns from their staff.

This means seeing bigger productivity increases, which can only come about by having a stable, engaged and skilled workforce, whose skills are used much more effectively. This is likely to sit alongside a greater use of technology.

For many businesses, this means a different HR approach to dealing with high levels of labour turnover, and the constant recruitment that has become the norm for many hospitality and retail businesses. However, as research from the likes of MIT in the United States shows, the benefits for those businesses that have adopted this approach speak for themselves.

Whichever way businesses choose to deal with the National Living Wage, we’re likely to see greater polarisation in the way they recruit, retain and develop their staff on the back of this announcement. Hopefully more employers will be persuaded to see the returns of a more stable, productive workforce.