Each year the Low Pay Commission is asked by the Government to recommend the following year’s National Living Wage and other National Minimum Wage rates. The LPC puts out a call to evidence for stakeholders to respond to. EEF has today submitted its response to the LPC. Today, I blog on 6 key takeaways from our submission.
1. Manufacturers have been keen to give manufacturers a pay rise
Due to a very good performance in 2017, manufacturers were in a position to offer higher pay rises to their employees
. In addition, the relative stability experienced after the referendum year resulted in a reduce number of pay freezes.
When we asked manufacturers earlier this year about their approach to pay reviews, almost half (44%) said pay increases were on a company-wide sale. Only 5.5% of companies relate wage raises only to individual performance. The most commonly used approach is combining both individual performance together with a company wise decision.
2. Increases to the National Living Wage rate has some influence on pay across the business
From our previous research we know that maintaining pay differentials
and the knock on impact of pay across the business were some of the biggest concerns of both the introduction of, and subsequent increases to the NLW. As the NLW increases, it becomes more likely that companies will need to look at how they maintain differentials. Many manufacturers have set pay bands for job roles therefore lower-level job roles that may be paid at or around the NLW are those that are likely to see the effects of NLW increases. The challenge for employers is maintaining the differential for the next job/salary band above.
We know from our pay research conducted early this year that increases to the NLW are factored into companies’ decision making process for overall pay increases, with almost half (47%) of companies factoring in NLW rises into this decision.
3. There remains a question mark over the need to retain all 5 rates
Manufacturers pay employees at a rate based on the job role/level and the skills/competences of the employee and not based on their age. In fact 83% of EEF members agreed that a 22 year old and a 26 year old doing the same job in their company at the same level get paid the same. Just 5% disagree.
For this reason, we continue to question the need to retain all five rates. The most recent increase to the 21 to 24 year old rate has begun to close the gap. Will manufacturers be impacted? Unlikely, as on the whole they are using the NLW as the minimum base rate of pay.
4. Employers do not pay the Apprentice Rate – they pay a lot more
As you can see from previous blogs (here
…and then again here
), we have also questioned the need for an Apprentice Rate. The Apprentice Rate structure is odd it itself – applying to those under 19 or only in the first year of their apprenticeship (so when you go into second, third and maybe fourth year you then get paid the age-specific rate). We’ve been calling on the LPC, and indeed Government, to keep it simple. Let’s pay learners their age specific wage rates. After all, manufacturers, and indeed most other sectors, are paying far above this rate.
5. A higher minimum wage rate for those on non-guaranteed hours will create more complexity
The LPC have this year been tasked with looking at the Matthew Taylor proposal to introduce a higher minimum wage rate for those on non-guaranteed hours (e.g. zero hours contracts). These types of contracts are used in our sector but on a limited basis
. Some manufacturers use zero hours contracts to bring back retired workers with specialist skills to work on particular projects, others offer zero hours contracts to students and recent graduates when the company is working on short-term, high intensity projects.
Both examples have advantages for the employer and the employee – the former supports older works to prolong their working lives without needing to work full time, the latter gives young people the opportunity to work on engineering projects to boost their future career prospects. Let’s remember that 60% of people on these contracts don’t actually want additional hours.
But there is more we can do. We could for example build on the current guidance on zero hours contracts and look at introducing a non-statutory code of practice. These avenues should be explored before adding yet another rate to the system.
6. We should nip the T Level mandatory work placement question of pay in the bud now
T Levels – the proposed solution to simplifying the Level 3 vocational education landscape are coming. As we stated in our response to the T Level consultation
, one area that is going to be particularly tricky for employers is the 3 month mandatory work placement. Mainly due to capacity and resourcing issues. But there is one area that needs to be covered quickly and that’s the issue of pay.
When an internship or industrial placement is a mandatory part of an education programme there is no legal obligation for an employer to pay. Therefore it would follow that under the T Level mandatory work placement, learners would not have to be paid. Some employers may pay a wage and/or allowances – particularly if they want to attract a high calibre of candidates - but it will be up to the employer to decide. However, already there are queries around this, so best we nip it in the bud now to avoid confusion and update the current NLW/NMW guidance to reflect this.
You can read our full response including our recommendations to the Low Pay Commission below.