Minimum wage regulations and cost dilemma for garden retailers

Pass on higher costs, absorb them or cut staff levels?

Workers: parties setting out policies ahead of election - image: HW
Workers: parties setting out policies ahead of election - image: HW

The costs of complying with National Minimum Wage (NMW) regulations are concerning retailers, with the question of whether to pass on costs, absorb them or cut staff a dilemma for growers and garden centres.

Ahead of the 8 June general election, the Conservatives say the National Living Wage (NLW) for workers aged 25 and over, currently £7.50 an hour, will rise in line with average earnings until 2022. The NLW is currently being phased in with the aim of reaching 60% of median UK earnings by 2020. For employees over the age of 25, the wage began at £7.20 in April 2016 and is projected to rise to at least £9 by April 2020.

Labour has promised to end zero-hours contracts and unpaid internships should the party win the general election. It would also scrap the public sector pay cap, which has left workers facing a £1,700 drop in annual pay by 2020. It would raise the NMW to match the NLW or to at least £10 per hour by 2020.

HTA horticulture head Raoul Curtis-Machin says: "There's nothing concrete from members about individual policies but one of our major concerns is costs going up as red tape increases. There are more pressures on businesses that maybe aren't that high-margin in the first place. The immediate challenge is about migrant and seasonal labour and what Defra will do on that."

Andy Newman, director at consultancy mdj, says: "Minimum wage increases over the last few years have been good for the population in general and raise living standards, but from a commercial perspective come at a time when costs are rising, which gives businesses a dilemma about whether to absorb or pass on the costs."

Tony Hewitt, chairman of Glendale owner Parkwood Holdings, adds that September catalogue prices are rising because of the NLW and other costs. "We expect inflation to be up 3-4% by the year end," he forecasts.

The Conservative manifesto vows to keep all workers' rights guaranteed by EU law, add worker representatives to company boards and protect pensions. There would also be a statutory right to a year's unpaid leave to care for a relative. Other measures would include protection for people in the "gig economy" (freelancers and those working primarily on short-term contracts) and a statutory right to training.

Wider economic conditions

British Retail Consortium (BRC) employment and skills policy adviser Fionnuala Horrocks-Burns says: "On wages, it is important the Low Pay Commission retain their independence and recommend increases that are manageable for the whole economy. Retailers support the NLW and continue to work hard to raise pay across the industry, but increasing pay without considering wider economic conditions is unsustainable. "

Helen Dickinson, chief executive at the BRC, says Labour commitments to increase flexibility to the apprenticeship levy while investing in lifelong education "will be positively received by an industry that is already seeing its skills base shift as consumers' shop in different ways and new technology is introduced to the workplace".

Labour has also pledged to review business rates, which the BRC has backed if the "review needs to incorporate business tax in its entirety and not be constrained by the technicality of fiscal neutrality around business rates".

The John Lewis Partnership has made a provision of £36m to cover the potential costs of complying with the NMW Regulations. The retailer is specifically looking at its practice of pay averaging, which aims to smooth out each staff member's pay over the course of a year to ensure a consistent amount is paid to them each month in respect of their basic pay. This arrangement may not meet the strict timing requirements for calculating compliance with the NMW regulations.

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