Preparing for the New Living Wage Increase: A Guide for Operators

As we approach April 1st, 2024, operators across various sectors are gearing up for the implementation of the National Living Wage (NLW) and other wage rate increases. This move, following the acceptance of the Low Pay Commission’s (LPC) recommendations, aims to fulfil a Conservative manifesto pledge to abolish low pay, defined as below 66% of median earnings. While this is a significant step towards ensuring fair compensation for workers, it also poses challenges for businesses, particularly those in sectors where labour costs constitute a substantial proportion of turnover.

Throughout the year, industry representatives have been actively engaging with the LPC and government officials, highlighting the potential adverse effects of such significant wage increases on businesses within the sector. It’s essential to recognise that these increases do not merely impact entry-level staff but have broader ramifications throughout the management structure.

Let’s delve into the new rates set to come into effect:

National Living Wage (21-years-old and over)

Rate from 1 April 2024: £11.44

Increase in pence: £1.02

Percentage increase: 9.8%

18- to 20-year-old rate

Rate from 1 April 2024: £8.60

Increase in pence: £1.11

Percentage increase: 14.8%

16- to 17-year-old rate

Rate from 1 April 2024: £6.40

Increase in pence: £1.12

Percentage increase: 21.2%

Apprentice rate

Rate from 1 April 2024: £6.40

Increase in pence: £1.12

Percentage increase: 21.2%

Accommodation offset

Rate from April 1, 2024: £9.99

Increase in pence: £0.89

Percentage increase: 9.8%

The LPC’s aim was to ensure that the NLW reached 66% of median earnings, a target they believe has been achieved. However, the forecasted level to reach this, as of March 2022, was £11.16 per hour. The significant rise in average earnings has pushed this target level higher. Additionally, other wage bands have also increased to prevent too great a discrepancy between them.

Strategies for Operators to Navigate the Wage Increase:

1. Better Align Staffing Needs to Optimise Labour Costs: It may sound obvious, but it’s often overlooked, cutting staff isn’t the solution. The key is to manage the value equation in the eyes of customers and avoid raising prices while cutting service levels. Operators should align staffing needs with consideration given to peak versus off-peak staffing rotas.
2. Take a Demand-Based Approach to Pricing: Reviewing item-level data across the estate will reveal which restaurants could be organised into different price bands based on customer reactions to previous price moves. Understanding customer willingness to spend ensures they see value for money without crossing price barriers.
3. Leverage Technology: In today’s hospitality landscape, technology plays a pivotal role. From kitchen automation to online ordering, technology can enhance the customer experience while allowing staff to focus on delivering exceptional service.
4. Have a Long-Term Game Plan: Unlike food inflation, labour costs can be planned for. Operators need a long-term plan to address these costs, making price changes in smaller increments spread over time. This approach allows for testing and assessment before full implementation.
5. Streamline Your Menu: Reduce labour costs and improve execution by streamlining the menu. Evaluate menu items for operational impact and consider whether profitable items may be slowing down service. Identify bottlenecks and adjust menu offerings accordingly.

While the upcoming wage increases present challenges for operators, proactive planning and strategic decision-making can help navigate these changes effectively. By prioritising employee well-being, investing in development, and leveraging technology, businesses can adapt to the new landscape and continue to thrive in the ever-evolving market. Let’s embrace these changes as opportunities for growth and progress.