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Risk in Context

Three Ways for Retailers to Manage the Impact of the National Living Wage

Posted by David Tate 23 March 2016

Set to begin in April 2016, the new National Living Wage (NLW) will raise the hourly minimum wage for UK workers aged 25 and over to GBP7.20 an hour.  The new law will have a significant impact in the retail industry, where average salaries tend to be lower than in other sectors. With the implementation date just a few weeks away, how will the retail sector respond and what opportunities are there to manage the change successfully?

The sector is already facing tough competition, price wars, and the growth of omni-channel. Against this backdrop, the British Retail Consortium (BRC) warns that increasing costs and changes to the way that consumers shop could cause retailers to consider how to absorb or pass on the new higher labour costs (900,000 UK Retail Jobs Could be Lost by 2025, Warns BRC). Although it is difficult to predict what the future holds, we may see:

  • Price rises as retailers pass the costs on to consumers.
  • Home delivery charges may increase, with an end to free delivery on the smaller orders.
  • Staff numbers may be cut or hours reduced to do more with less.
  • Store numbers may fall as the impact of the NLW will make small and marginal stores unprofitable.
  • An increase in outsourcing or use of sub-contractors for cleaning, security, or couriers, since they will not be subject to the NLW.
  • Adoption in new technology in stores and in warehouses may accelerate as retailers look to cut costs.

THREE STEPS TO MANAGE RISK AND PROTECT REPUTATION

Keep focused on effective health and safety: The NLW and any associated reduction in hours and jobs may make employees more aware of other minimum rights and standards. At the same time, retail employers may have less operating budget to spend on risk control measures. This could lead to an increasing number of claims for work-related accidents or ill-health and the associated costs involved in defending claims and managing reputation.

Review employment practice procedures: An increasing amount of new employment legislation and any disputes relating to hours, processes, and/or jobs may mean employers have a greater exposure to employment tribunal claims, making compliance with new regulation an important part of business operations.

Talk to your broker about liability insurance costs: The NLW may affect how liability premiums are calculated. For employers liability, the exposure is evaluated by considering historic claims experience; evidence of a positive approach to risk management and health and safety; maximum accumulation of employees at any one time and any one location; and the size of the risk. The size of risk is normally measured by wage roll, however, wage roll does not directly correlate to employee exposure. Marsh is working on alternative headcount-focused measurements to minimise the impact of the NLW on liability premiums.

David Tate