This article was updated on 28/12/15
Schools will experience pressures on their salary budgets and other costs in this academic year due to the fall out from:
- the increase in the current Living Wage;
- the growing number of employers voluntarily adopting the Living Wage;
- the introduction of the National Living Wage in April 2016;
- the implications for the grade structure and differentials for support staff.
The Living Wage is different from the National Living Wage. The latter currently has one minimum rate for adults aged 21 and over which is £6.70 per hours. From April 2016, an additional age band will come into effect. That applies only to those aged 25 or over and the rate will be £7.20
A Pincer Effect
It is not just a question of affordability as you need to consider:
- the strain on grade structures and pay differentials from April 2016 when the new National (Living) Wage of £7.20 per hour takes effect for employees of 25 years or older;
- how you will shape the expectations of employees as some staff are likely to receive a lower net pay increase than anticipated and thus feel disaffected;
- what are local employers doing about pay in your recruitment area?
Now is the time to consider what actions you can take to contain salary costs and to attract and retain key staff.
Direct Salary Pressures
Some faith schools and Local Authorities have adopted the Living Wage which means their minimum salary rate will now be £9.40 per hour in London and £8.25 per hour elsewhere. In some instances, the local authority has recommended that schools adopt the Living Wage. An increasing number of employers are adopting the Living Wage – about 2,000 have signed up to pay the Living Wage. Those are not all large firms so you need to understand what is happening locally. If the Living Wage becomes an issue locally, it will lead to a significant increase as additional employer on costs will be incurred compared to the current LA Support staff rates – see later.
In April the National Living Wage of £7.20 will take effect. That is mandatory so schools will have to pay the minimum rate for those aged 25 or over. Currently the adult minimum wage for those aged 21 or over is £6.70 per hour. From April that rate will still apply to those aged 21 and up to and including age 24.
However the rise in the basic pay rates is just one part of the problem. Pay differentials will be affected especially for support staff in the lower pay grades.
Erosion of Pay Differentials Grades 1 and 2
When the National Living Wage starts in April 2016, those aged 25 or over will be entitled to £7.20 per hour in place of the current minimum wage rate of £6.70 per hour.
This will present problems for roles that are on grades 1 and 2 and potentially grade 3 of the support grades. The rate of £7.20 would equate to point 9 on grade 2 which is the mid-point of the grade. That will affect, for example, Mid Day Supervisors, Teaching Assistants (Grade 2).
This will also increase employers’ on costs. Heads will face an increase of between 6% and 30% depending on whether or not a member of staff is in the Local Government Pension Scheme.
Compression and Inflated Salary Rates
As the National Living Wage only applies to 25 years olds, Heads should strive to retain flexibility within their pay structure so that they can pay the national minimum wage rate of £6.70 for adults aged between 21 and 25 and the rate of £7.20 for those aged 25 or over. Simply abolishing the current grade 1 will lead to grade compression and inflation within the grade structure. Staff on grades 2 and 3 will feel that the differentials are no longer representative of the actual demands of their role compared to ‘lower graded roles’. Some managers will sympathize with that feeling.
Employee Disenchantment – Shape Expectations
Some staff will experience higher deductions from their pay because their earnings will pass the threshold for auto enrolment into a pension scheme. That will be felt even more in 2017 when the minimum contribution from employees will rise from 1% to 3%. [Note the Chancellor has indicated that the increase in contribution rates will be deferred until 6th April 2017 – see note at end].
It is also anticipated that firms will seek to offset the rise in wages by increasing prices. Any increase in the price of basics, such as food, will erode much of the gain for lower paid staff.
Heads should encourage managers to shape the expectations of employees by forewarning them of the likely effect on their gross and net pay so that they are not taken aback by a smaller net increase in their pay.
Options to Minimise Cost Increases
What will your first reactions be? Will you gravitate towards the following thoughts:
- recruit staff under the age of 25 – this solution will eventually become ineffective as the staff age and it may distort the balance of skills and experience required amongst your staff;
- reduce the number of hours/staff affected by the new salary rates. However, that may be thwarted by the need to have a minimum number of individuals assigned to specific classes or groups and hence the need to retain individuals;
- reduce overtime – in many schools overtime is not significant.
Unlike industry, schools do not have much room to improve productivity in ways which will reduce wage costs. A more measured approach is required to identify options that will fit with the school’s needs
Local Authorities may try to compress the grade structure, as happened a few years ago. That is likely to leave some staff feeling undervalued as staff in the lower grades receive a boost to their pay which narrows differentials in pay between higher grades.
Whether your LA changes the grade structure or not, one potential solution is to consider the role of MDS v TAs for dinner times. Some schools claim that the use of TAs to supervise the lunch break leads to the children settling down quicker after being active during the lunch break. Recruiting staff as TAs on grade 2 or 3 (depending on your LA’s role descriptions) may provide a more flexible solution as TAs should be employed for both lunch break and classroom duties i.e. employed for a morning or afternoon spanning the lunch time. TA grade 3 may be more appropriate if the number of issues to be dealt with at break times falls within the grade 3 rather than grade 2 role definition.
Heads may also consider developing the skills of their support staff so that any increase in pay is matched by a more flexible set of skills – read more about this option below. Heads will need to consider the implications of the LA grading structure for such an option and whether the LA grading and role descriptions will hinder or prevent that as a way forward.
Academy Schools have a wider range of solutions open to them as they are not restricted by the local authority’s support staff pay structure. Heads would be wise to check whether, in the TUPE consultations, any agreements were made to follow the LA terms and if those, in practice, have become contractual terms for their support staff.
New ways can be introduced, for example:
- Increasing the skills and versatility of individuals so that as the pressure on pay rates grow, staff will be encouraged and expected to apply a wider range of skills and carry out wider duties – which should help to contain costs;
- Focused skill bonus payments which are paid periodically e.g. quarterly or annually as the skills become evident – these bonuses would not form part of the basic pay rate and so would not lock the school into higher, on-going rates of pay;
- Market rate supplements that can be reduced, stopped or increased to match the pressures on recruiting and retaining key individuals.
Thought will need to be given to the wording of the terms for such new options to ensure that the Head/Governing body retains flexibility on costs etc.
If you have concerns about your reward structure and/or salary levels or you
wish to explore new approaches, please feel free to contact
the author, Jim Harrington, by e-mail at this address..
Related Blog Articles: Read more about the ripple effect and options to address salary pressures in our blog article – Living Wage has Hidden Costs for Employees and Employers.
This article is an extended version of an earlier article published on 16 November 2015 and has additional material added because of the interest shown in the topics. Note that the increase in employee and employer contributions to 3% and 2% respectively has been postponed from October 2017 until 6th April 2018.
© 2015 HR Management Dimensions Ltd.
HR Management Dimensions