National Minimum Wage
Issues relating to the National Minimum Wage (NMW) are of great importance for
the FDF in maintaining the competitiveness of, and employment levels in, the UK
food and drink sector. FDF therefore submits evidence to the Low Pay Commission
(LPC) every year about what the LPC should recommend to the Government about
future increases in the NMW. This evidence is based on consultation with FDF
through its Employment and Skills Forum.
Whilst the NMW may initially have had only a minor direct impact on FDF members,
they have always felt its indirect impact on the cost of services, such as
cleaning, catering and security, that are provided to them. Suppliers of these
services, which are generally labour intensive, try to pass on the direct cost
increases in wage costs, such as the NMW, to FDF members and this therefore has
an adverse effect on their competitiveness.
Over the last few years, FDF members have reported considerable upward cost
pressures, particularly for fuel and raw materials, and these, together with
additional burden of increased labour costs, have had an adverse impact on
Changes to employment regulations, such as the Agency Workers Regulations, the
right to request flexible working and the removal of the Default Retirement
have had a significant cost impact particularly for smaller companies and
companies paying the NMW to some of their employees. Business profitability has
been significantly squeezed in recent years.
FDF considers that it is critically important for the future competitiveness of
the UK food and drink manufacturing sector that the direct impact of the NMW on
its members is minimised. In the current more difficult and uncertain economic
climate, it will therefore be particularly important for the LPC to adopt a
cautious approach when making recommendations to the Government about future
increases in the NMW to minimise any possible adverse impact that these
have on business costs, competitiveness and employment levels.
Since its introduction in April 1999, the NMW has been increased by the
Government at a rate which is well in excess of the rate of inflation or the
pay settlements that have been reported by FDF members over this period. As a
result, the NMW has had a direct impact on pay levels and the structure of
remuneration for FDF members. In particular, they report pressure to maintain
differentials between their basic rates of pay and the NMW as some employees
still attach a
stigma to the term ‘minimum wage’ and therefore seek to maintain a distance
employers paying the NMW.
Over recent years, FDF has argued that an appropriate formula should be used to
determine future increases in the NMW. FDF considers that this approach would
give employers greater certainty about the direct and indirect impact that
increases in the NMW are likely to have on their businesses. This would
therefore make it easier for employers to plan and budget for any anticipated
increases. It would also enable them to implement any changes that they feel
be made to their pay levels and/or remuneration structures in a more controlled
and cost-effective manner.
FDF considers that the formula which should be used by the LPC to determine
future increases in the level of the NMW is the movement in basic rates of pay
across the economy over the previous 12 months. This formula should be used
the NMW is a basic rate of pay with employees who are paid the NMW able to
enhance their earnings through additional payments such as, for example, shift
overtime and bonus payments. Since the NMW is a basic rate of pay, FDF would
therefore strongly oppose having a formula for determining future increases in
NMW that was linked to increases in average earnings.
FDF considers that future cost increases, economic uncertainty and continued
pressure to enhance employee benefits now means there should be a moderation of
future increases in the NMW for the sustainability of the UK food and drink
FDF members are currently facing increases in both employment and non-wage
costs, including energy, raw materials and insurance, which are having an
effect on the sector’s competitiveness.
FDF members have also had to implement many new employment rights since the NMW
was introduced in 1999 and the cumulative effect of these new rights has
both administrative burdens and direct labour costs on them. For example, the
implementation of the Agency Workers Regulations in 2011 has imposed further
as will the proposed extension of the right to request flexible working to all
FDF recognises that there may sometimes be special circumstances when the LPC
should modify the result of using our proposed formula for determining future
increases in the NMW. These would include forthcoming legislative changes that
likely to have a disproportionate impact on those sectors of the economy and
those employers who pay the NMW to all or some of their employees.
An example of this legislative change is the staged introduction from October
2012 of the requirement for all employers to automatically enrol their eligible
employees into a qualifying workplace pension arrangement, including that
by the National Employment Savings Trust (NEST), with the employer being
required to make a pension contribution for all employees who do not choose to
of, initially, 1% and, ultimately, 3% of a band of earnings. The LPC has
previously modified its recommendation to the Government about future increases
NMW when the statutory annual holiday entitlement was gradually increased from
20 to 28 days and FDF considers that a similar approach should be adopted when
the pension auto-enrolment legislation is introduced.
FDF members have also asked for consideration to be given to repositioning the
NMW so that, in the future, it is called a ‘standard pay rate’ as it is felt
this would help to reduce the potential stigma of it being referred to as a
‘minimum’ level which is seen as negative by some employees.
Last reviewed: 30 Apr 2013