Wage policy: The key considerations for employers

How much should you pay your employees? It’s one of the most important questions facing any business.

Wage policy can be a delicate balancing act between managing costs and ensuring that you pay enough to sufficiently reward existing workers and attract new ones. It also comes with considerations linked to equality, productivity, living standards and many more issues besides.

If your business is currently in the process of setting or revising its wage policy, here are some of the key factors you will need to take into account.

Cost

The workforce is arguably the most important component of any successful company, but it is also one of the most expensive.

This is an area where many employers have been coming under increasing pressure in recent years. The launch of the national living wage (NLW) in April 2016 set minimum pay for workers aged 25 and over at £7.20 per hour, increasing to £7.50 in April 2017. The launch of automatic enrolment in workplace pensions has also driven up payroll expenses for many firms.

The latest Small Business Index from the Federation of Small Businesses (FSB), published in April 2017, forecast that the average FSB employer will face £2,600 in additional employment costs over the coming year. This is mainly the result of auto-enrolment, the NLW and resulting national insurance contributions.

There are actions employers can take to reduce or offset costs linked to their workforce. Remote working, for example, is something that is becoming increasingly common and provides a way for businesses to save money by having fewer people in the office. It could also help to improve employees’ work-life balance and job satisfaction.

Other options include looking into the viability of non-financial rewards and using new payroll systems that could help your business cut costs through greater efficiency.

Equality

Workplace equality is an issue that has come under close scrutiny following the recent launch of gender pay gap reporting regulations. These new rules mean that all employers in Britain with more than 250 employees are required by law to publish data on the differences in pay and bonuses for their male and female staff.

In light of this increased transparency and accountability, there is a greater onus on businesses to ensure all of their workers – regardless of gender – are receiving a fair wage.

Research has suggested that many employers haven’t made the necessary preparations to comply with these new rules. Around a third (32 per cent) of companies responding to a Totaljobs survey admitted they were not reviewing salaries across genders to prevent pay discrimination.

Totaljobs director John Salt said: “It’s imperative that we act now, especially when our research showed 51 per cent of employers don’t coach or prepare their management on equal pay and gender equality. The remuneration decision-making process needs to be made more transparent – pay decisions should not be kept to the confines of top management and board meetings.”

The Women and Equalities Committee has called on the government to go further to address the root causes of the gender pay gap. It said action is needed on the following fronts: addressing the part-time pay penalty, supporting parents in sharing childcare, helping women back into work after time out of employment and tackling low pay in highly feminised sectors such as catering and caring.

Motivation and productivity

Keeping employees sufficiently motivated and productive at work is an important goal for many organisations, but it’s not always easy.

Pay is a crucial motivating factor for employees, of course, but is it the most powerful incentive for people to maintain a positive attitude and work hard? Research suggests possibly not.

A recent survey of 1,000 UK workers by Course Library – the result of a partnership between e-Careers and CV-Library – examined the factors that contribute to people’s happiness at work. The findings showed a strong correlation between job satisfaction and opportunities for learning and development. Of the 44 per cent of respondents who felt happy in their jobs, 38 per cent said it was because they are constantly learning new skills. A quarter of those who were unhappy in their current role blamed a lack of development opportunities.

With concepts like flexible working and a healthy work-life balance becoming increasingly important, we could see more employees showing a greater interest in how, when and where they work, rather than simply how much they are paid.

A recent report from the Reward & Employee Benefits Association and JLT Employee Benefits noted that, for many businesses, regularly raising salaries is simply not a feasible option. As a result, three-quarters (76 per cent) of surveyed firms said they would be increasing their focus on employee benefits over the coming years.

Employee living standards

Employers that want to ensure they are giving their staff a fair deal on pay should make themselves aware of macroeconomic trends such as inflation, and the impact these external factors could have on individual spending power.

Rising inflation has been highlighted as a particularly concerning issue for consumers. The National Institute of Economic and Social Research has predicted that consumer price inflation will rise to 3.4 per cent by the end of 2017, before gradually falling back to the Bank of England’s target of two per cent.

The Trades Union Congress has warned that UK real wages – taking into account the effects of inflation – are set to fall by 0.5 per cent by the end of 2018, compared with the start of 2016.

TUC general secretary Frances O’Grady said: “British workers have endured the longest pay squeeze since Victorian times. And now even more pain is on the horizon. Britain badly needs a pay rise – and all the political parties must explain in their manifestos how they will boost living standards across the UK.”

Employers that are able and willing to raise pay for their longest-serving and most valuable members of staff could help to reduce the risk of what the TUC has called a potential “living standards crisis”. Offering fair and proportionate pay rises could also strengthen employee engagement, loyalty and productivity, supporting the long-term performance and health of the business.