Saturday, 2 April 2016

The living wage – it's not just about salary.

Increasing the minimum wage payable in the UK for those of 25 years and above must be a good thing. I’m not convinced by the age criteria though – how can it be right for a 20 year old and a 26 year old to be doing the same job but not earning the same income? I do wonder if age discrimination could apply here – a test case just waiting to happen methinks.

But minutiae aside – how is the legislation making a 'living wage' mandatory going to affect the employment landscape in the UK? Employee benefits consultants and healthcare advisers will have some larger clients operating in a variety of sectors, some of whom may feel a significant financial impact of this uplift in their wage bill. Who will ultimately pay for this?

This new legislation reminds me of the introduction of the Patient Protection and Affordable Care Act (PPACA or ‘Obamacare’) in the US in 2010. I attended several conferences across the pond where employers and benefits providers discussed this in great detail. The difference between PPACA in the US and ‘Living wage’ in the UK are that the first introduced a mandatory level of health care benefit to be funded by employers and the second is a mandatory level of pay. Both initiatives have the effect of compromising funds available to be spent on a section of the workforce.

As ‘Obamacare’ was introduced there was much bluster for the food and beverage industry – with one spokesman stating ‘This could bankrupt America’ – of course it hasn’t.

In the US, employers found ways of getting round this increased benefits bill which was estimated at being between a 6% and 10% uplift in costs. After Supreme Court challenges against the Bill failed, industry bosses changed employment practices – swapping full time employees for more part time staff (to avoid the minimum number of full timers required for the Act to apply). Salaries were subjected to downward pressure to offset the healthcare benefit costs. One study undertaken 6 months after the introduction of the PPACA showed that rather than charge the cost of the uplifted benefits bill on to customers, 46% employees found a way to pass the increased expense to the employees and only 9% companies absorbed the costs via their profit margin.

Interestingly, in another survey, a large number (44%) of enlightened employers actually planned to increase their health management and wellbeing programme spend in an effort to reduce the claims on the mandatory health insurance, and therefore reduce premium cost.

This brings me back to the UK and my main area of concern regarding the living wage which is the impact on employee benefits. While of course supporting a living wage for all, I fear that something else will be sacrificed to balance employment costs.

Corporate healthcare benefits such as cash plans (offering reimbursement of a range of health related services) has enjoyed a period of dramatic growth over the past decade – 12% in 2014 - as companies provide this low cost, but much appreciated benefit to entire workforces including ‘lower paid’ staff. It is estimated that there are currently well over three quarters of a million employer paid plans currently in place. Company paid private medical insurance schemes account for over 75% of the UK PMI market and corporate dental plans continue to be highly popular. Those covered by a company paid life insurance, critical illness and income protection schemes has also grown by 1.25 million over the past five years.

Put simply – good health is good business. A well-designed healthcare benefits plan protects the health, wellbeing, and engagement of employees –and therefore productivity of the workforce.

So employers please take note. Cutting employee benefits to offset the increased wage bill due to the living wage could be false economy. Investment in health is money well spent.



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