The Living Wage and the National Wage – hidden costs for employees and employers

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

LA Schools

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

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.

Related blogs and websites
Headsup HR – blog for Head Teachers and Governors of Schools
HR Management Dimensions blog  – for CEOs and senior managers

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Casual and Zero Hours Staff – Restrictions on Contracts

Do you insist that casual or zero hours contracted staff may not work for another employer?

Do you require such staff to obtain permission to work for another employer?

If so, you need to revise your contracts and arrangements as it is now illegal to require such staff to work exclusively for your organisation.

Other changes are also proposed to take sanctions against employers who try to flout the requirement against exclusivity clauses in such contracts. This could affect sessional music teachers, casual instructors and other zero hours contracted staff.

Zero hours contracts are not illegal but you need to understand the principles for such contracts and the practical issues. Read more by clicking on a link to an article (on our sister blog) – Casual/Zero Hours Staff – A Balanced Approach.

KEEP UP TO DATE – If you wish to receive alerts about new articles on this blog, click on the link in the left hand column of this page to receive e-mail alerts to new articles.

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Academies Act 2010 – TUPE Issues for the LA and Governors

Now that the Academies Act has been passed, schools wishing to convert in the next few months will need to take action to ensure that they receive key information, indemnities and warranties.  Although the current employer is required to consult employees and provide information to the school, it is easy to overlook the various types of information you will need to avoid unwelcome surprises.

A starting point from an earlier article is expanded below.

Insist on Full Disclosure

The Governing Body should request full information on:

  • The current contractual terms of employment of each individual.
  • Any one off agreements/terms that come into affect later such as individual ‘incentive’ payments
  • Any discretionary payments or terms made to an individual – important to be sure that they are only discretionary and not binding in future
  • Any special leave granted and whether paid or unpaid in the 12 months prior to conversion. This should include parental leave and similar so that you do not duplicate leave in the future.
  • Any contractual policies applying in general or to particular groups of staff which are likely to have financial consequences e.g special leave, PPA time over the 10% national term for teachers.
  • List of staff who are suspended or absent for any reason especially long term such as ill-health, maternity leave on the date of conversion with the known or expected return or review dates.

Actual or Potential Liabilities

In addition, the Governing Body should request details of any actual or potential liabilities that will pass on transfer of the staff such as:

  • Personal injury claims by current or former staff that have not been concluded
  • Grievances or disputes regarding an individual’s terms of employment
  • Employment Tribunal claims including discrimination, bullying or harassment
  • County Court claims such as significant breach of contract claims
  • Civil claims such as harassment
  • Pending or actual police investigations or prosecutions
  • Health and safety improvement notices etc and copies of any reports in the last three years (if not in the school’s possession)

The LA may also wish to seek warranties and indemnities to ensure that any potential legal claims or financial liabilities have been declared and investigated by the school sufficiently. That will be important in the light of the surplus and deficit provisions in the Act.

Those type of information issues will form the bulk of the work to ensure that you have a clear picture of each individual’s employment terms and record going forward. However, there is a sting in the tail of the TUPE Regulations of which you need to be aware.

Detrimental changes to an individual’s contractual terms after transfer will be in breach of the regulations and potentially give rise to claims against the school. There are limited exceptions for example, economic and technical organisational reasons. Schools should not think that the transfer of staff offers a new canvas on which to paint a new scenario of terms of employment as unfortunately the schools will need to take the TUPE route of addressing transfers.

The above is a brief overview. Are you interested in being guided through the issues and process? If so, contact us via our website   We apply the many dimensions of people management and organisational capability to help you to produce commercially and service focused solutions to human resource management issues.

© 2010 HR Management Dimensions

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Budget Deficits and Organisational Changes in Schools

Is there an effective approach to reducing staffing costs which also takes account of the educational needs of pupils?

Be Clear About the Skills and Flexibility Required for the Medium Term

Faced with the need to balance their budgets and the fact that staff costs amount to 70% or more of expenditure, Head Teachers and Governors are increasingly having to consider reductions of staff.  That may effect teachers, teaching assistants and other support staff.  Rather than simply trim 10% or more off certain staffing budgets, a more effective approach is to consider what flexibility is required for the school to meet the likely pupil profile and educational strategies over the next few years. With fewer staff, it becomes important to ensure that the staff to be retained are those with the required skills and flexibility..

Examining the needs of the school is the key to a successful change.  Simply making the bulk of reductions in Teaching Assistants is likely to create other issues.  For example, the lack of cover for continuing professional development sessions or 1:1 help with pupils that present particular challenges.  The lack of CPD may increase the inclination of effective members of the teaching staff to leave.  The Head Teacher and senior leadership team need to take an objective view of the school’s needs and determine what are the range of skills and flexibility required.

Retain an Appropriate Mix of Skills

Regrettably, redundancies may not be avoidable but the following points should not be overlooked in your approach to the future organisation:

  • What skills and relevant experience will be demanded by the future needs?
  • What key attitudes and flexibility will be required going forward?
  • Are those evident from tangible, objective sources that can be referred to in any selection criteria?

For example, when considering skills ask yourself whether the relevant staff have collectively or individually:

  • Sufficient skills to teach across all the required key stages
  • Ability/willingness to support extra curricular activities essential to the school’s attainments and reputation to retain and attract pupils
  • Breadth of teaching assistant skills for cover and other tasks
  • Flexibility in administrative tasks

Redundancy of Roles

If part of the solution necessitates some redundancies, it can be helpful to think about the above in terms of what and who needs to be retained to secure the future needs of the school.  Usually, that requires four key steps:

  1. General consultation with staff representatives.
  2. Seeking volunteers for redundancy and deciding whether or not an individual can be released and also if compulsory redundancies are required.
  3. The selection criteria that will be used.
  4. Consultation with the affected individuals.

The criteria should reflect the future needs of the school but you will need to think carefully whether there is objective evidence available to support assessments against the criteria. If criteria such as teaching standards are being used, it may not always be practical to find objective evidence to hand. Occasionally, you may have to rely upon the professional judgement of the Head and/or Senior Leadership Team to assess/determine whether an individual has consistently met the standards being assessed and the objective evidence for the conclusions or assessment..

By focusing on the future needs, what skills etc need to be retained and who should be retained, you will be a good way towards an effective approach to reducing staffing costs and balancing the future needs of the school.

Dealing with individuals who are being displaced requires sensitivity and time to ensure that they make informed decisions about  volunteering for redundancy, the financial implications including pension issues as well as the implications for those who will be terminated as a result of a selection exercise. At the same time or shortly afterwards, you then have to invest time in focusing and developing the remaining members of staff to focus on the challenges ahead.

Interested to learn more? Contact us via our website   We apply the many dimensions of people management and organisational capability to help you to produce commercially and service focused solutions to human resource management issues.

© 2010 HR Management Dimensions

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Blogs: Headsup HR; 
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