LOW PAY COMMISSION CONSULTATION ON THE APRIL 2019 NATIONAL MINIMUM WAGE RATES SUBMISSION BY THE ASSOCIATION OF LABOUR PROVIDERS
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Camberley House
1 Portesbery Road
Camberley, Surrey
GU15 3SZ
Tel: 01276 509306
Email: info@labourproviders.org.uk
Website: www.labourproviders.org.uk
June 2018
LOW PAY COMMISSION CONSULTATION ON THE
APRIL 2019 NATIONAL MINIMUM WAGE RATES
SUBMISSION BY THE ASSOCIATION OF LABOUR PROVIDERS
Contact
David Camp, Chief Executive | T: 01276 509306 | E: David@alliancehr.co.uk
Introduction
ALP (www.labourproviders.org.uk) is a trade association promoting responsible
recruitment and good practice for organisations that supply the workforce to the consumer
goods supply chain across the food processing, horticultural and wider manufacturing,
industrial, warehousing and distribution sectors.
ALP member organisations supply approximately 70% of the temporary contingent
workforce into the food growing and manufacturing supply chain. Many of these workers
progress to form the permanent workforce for UK industry. All organisations that supply
labour into these sectors are required to be licensed by the Gangmasters and Labour
Abuse Authority (GLAA).
ALP's members predominantly provide unskilled workers and semi-skilled workers.
Market pressures mean that unskilled work is either at, or very close to, national minimum
wage (NMW). For many years these irregular low-paid jobs have been largely filled by
migrant workers, able to earn more than they can in their home country. Depending on
region EU workers make up between 70 and 100% of workers supplied by labour
providers, the remainder being British nationals and those migrants from non-EU countries
that have been given right of residence in the UK.
Labour providers operate in a very competitive market largely resulting from the downward
pressure on costs exerted by the consumer goods supply chain. It follows that margins
are thin, although just adequate to allow efficient businesses to continue.
The actual hourly rate charged by a labour provider to the hiring client for the supply of
temporary workers is ultimately a commercial agreement. Any agreed rate should take
into account the particular costs of supply. Hirers of temporary labour that pay
unrealistically low rates are knowingly or recklessly conniving in illegality as these rates
can only be achieved either through worker exploitation or tax evasion or both.
1ALP Submission
The ALP makes the following points to the LPC to take account of in considering its
recommendations to government on future wage policy.
For the National Living Wage, LPC is seeking evidence in order to advise on the best path
towards a target – 60 per cent of median earnings by 2020, particularly:
• Views on the affordability and effects of an increase to the ‘on target’ rate for 2019 –
currently around £8.20 – or whether we should be more or less cautious.
• Evidence of the impact of increases in the NLW since its introduction
• Evidence on the economic outlook more generally
1. Labour Market
Labour providers to the consumer goods supply chain are experiencing the most extreme
labour supply shortages known:
1. EU unemployment at 7.1% is falling and fast approaching the historic low of 6.8%.
The UK unemployment rate at 4.2%, is the lowest since 1975, 43 years ago.
2. 70% of labour providers were unable to meet their food industry clients’ labour
demands for the Christmas 2017 peak. 55% could not meet client demands in the
‘quiet’ period of February to April 2018.
3. 55% of labour providers reported a decline in the quality of labour (English
language, productivity, reliability etc.) compared to this time last year whereas only
4% reported an improvement.
4. At Christmas 2017, 70% of food and beverage manufacturing companies struggled
or were in crisis with regard to supply of low and unskilled workers. Asked, “How do
you see the position of your site with regards to supply of labour and skills in 2018?”
We
It will
We’ll should We will
Skill Level be a
be fine just be struggle
crisis
OK
Highly-skilled: Degree level and above e.g. Engineers,
33% 39% 23% 4%
Directors etc. (National Qualification Framework 6 and above)
Skilled: Requiring a degree & experience e.g. Production /
27% 41% 31% 1%
Operations / HR Managers, (NQF level 6)
Semi-skilled: Requiring experience & training e.g. Skilled
15% 36% 39% 10%
trades (NQF 3-4)
Lower-skilled Permanent: Requiring some training/experience
12% 17% 47% 24%
e.g. Process operative, skilled field worker (NQF 2)
Lower skilled temporary / agency / seasonal 11% 15% 44% 30%
Unskilled: Requiring minimal training/experience, e.g.
11% 18% 41% 30%
Elementary roles, picking, packing etc. (below NQF 2)
Unskilled temporary / agency / seasonal 13% 18% 39% 30%
2In summary, 71% of food and beverage manufacturing companies anticipate labour
shortages in low and unskilled roles in 2018. Around one in three companies
expect a labour supply crisis. The full
5. At Christmas 2017, 60% of agriculture and horticulture businesses experienced
shortages in low and unskilled roles with one in eight in crisis. 75% of agriculture
and horticulture businesses anticipate shortages in low and unskilled roles in 2018
and of these over a quarter envisage a labour supply crisis.
We
It will
We’ll should We will
Skill Level be a
be fine just be struggle
crisis
OK
Highly-skilled: Degree level and above e.g. Engineers,
48% 37% 12% 3%
Directors etc. (National Qualification Framework 6 and above)
Skilled: Requiring a degree & experience e.g. Production /
45% 42% 11% 3%
Operations / HR Managers, (NQF level 6)
Semi-skilled: Requiring experience & training e.g. Skilled
20% 43% 33% 4%
trades (NQF 3-4)
Lower-skilled Permanent: Requiring some training/experience
16% 22% 45% 17%
e.g. Process operative, skilled field worker (NQF 2)
Lower skilled temporary / agency / seasonal 12% 10% 50% 28%
Unskilled: Requiring minimal training/experience, e.g.
10% 10% 52% 29%
Elementary roles, picking, packing etc. (below NQF 2)
Unskilled temporary / agency / seasonal 13% 9% 48% 30%
2. Rising labour costs
2.1. The ALP produces indicative Charge Rate Guidance. Charge rates lower than those
in the rates tables plus a sustainable net margin may indicate illegal activity.
NATIONAL MINIMUM AND LIVING WAGE Apprentices Age 16-17 Age 18-20 Age 21-24 Age 25 plus
1. Minimum wage £ 3.70 £ 4.20 £ 5.90 £ 7.38 £ 7.83
2. Employers’ NI Contributions £ - £ - £ - £ 0.46 £ 0.52
3. Annual Holiday Pay (5.6 weeks entitlement) £ 0.45 £ 0.51 £ 0.71 £ 0.95 £ 1.01
4. Apprenticeship Levy (for businesses with over £3m paybill) £ 0.02 £ 0.02 £ 0.03 £ 0.04 £ 0.04
5. Pensions Auto-Enrolment Cost (2% of qualifying earnings) £ - £ - £ - £ 0.09 £ 0.10
6. Total Wage Costs £ 4.17 £ 4.73 £ 6.65 £ 8.92 £ 9.50
7. Guideline Statutory Sick/Maternity Pay cost £ 0.11 £ 0.11 £ 0.11 £ 0.11 £ 0.11
8. Guideline Minimum Labour Provider Overhead & Service Cost £ 0.65 £ 0.65 £ 0.65 £ 0.65 £ 0.65
9. Hourly Cost of Supply (not including Labour Provider Margin) £ 4.93 £ 5.49 £ 7.41 £ 9.68 £ 10.26
2.2. The Apprenticeship Levy is in effect a business tax of 0.5% for labour provider clients,
as due to the nature of their business being to supply a temporary and flexible
workforce, they are largely unable to take advantage of its provisions.
2.3. In April 2018 the rate of auto-enrolment pension contribution increased from 2% (a 1%
employer and 1% employee contribution) to 5% (a 2% employer and 3% employee
contribution. This is an additional cost for business and will rise again in 2019.
2.4. Labour providers responding to the May 2018 ALP Labour Market Survey stated
We have had to invest more money and resources into sourcing workers 80%
Clients have had to increase wage rates to attract workers 49%
Existing workers have had to work extra hours and overtime 28%
32.5. Food Growers and Manufacturers responding in January 2018 ALP Labour Market
Survey responded to “Which of these are you actively adopting in response to the
labour and skills shortage (all that apply):
Increasing wages and benefits to attract and retain more staff 66%
Improved worker sourcing and retention policies 68%
Increasing hours worked and overtime of existing staff 41%
2.6. There is an accelerator effect on other social charges causing a significantly greater
increase on total wage bills than the increase in NLW alone, as the table below shows
calculated on a 40 hour week worked:
April April April April
NATIONAL MINIMUM AND LIVING WAGE
2015-2016 2016-2017 2017-2018 2018-2019
1. Minimum wage £ 6.70 £ 7.20 £ 7.50 £ 7.83
2. Employers’ NI Contributions £ 0.39 £ 0.46 £ 0.49 £ 0.54
3. Annual Holiday Pay £ 0.86 £ 0.92 £ 0.96 £ 1.01
4. Apprenticeship Levy £ 0.04 £ 0.04
5. Pensions Auto-Enrolment Cost £ - £ 0.04 £ 0.05 £ 0.10
6. Estimate Statutory Sick/Maternity Pay £ 0.11 £ 0.11 £ 0.11 £ 0.11
7. Total Wage Costs £ 7.94 £ 8.62 £ 9.05 £ 9.52
Percentage Increase 8.58% 4.92% 5.26%
2.7. The falling quality of workers means lower productivity and increased product costs.
2.8. Food growers and manufacturers are reporting real impacts on their businesses
caused by labour shortages and increased costs. Those responding to the January
2018 ALP Labour Market Survey reported:
Looking to source or relocate overseas 8%
Scaling down our operation in light of labour cost/shortages 13%
Our business is becoming unviable 6%
3. Impact of the rates on younger workers
LPC seeks evidence on the impact of the rates on younger workers’ employment
prospects including how widely the 21-24 Year Old Rate is used, and what effect, if any,
the gaps between the different rates have on different age groups’ labour market
performance.
3.1. The NLW applies to workers aged 25 and over, however, consumer goods suppliers
and their labour providers are required to meet supra national ethical labour standards
in accordance with the ETI Base Code. The code requires equal pay for work of equal
value and therefore to apply the age related NMW levels to younger workers is
assessed by social compliance auditors as age discrimination. This means to be
compliant with ethical labour standards, consumer goods suppliers (including their
labour providers) must pay the higher NLW rate to all workers with the incumbent
increase to overall labour cost that this incurs.
3.2. The NLW is in effect state legalised age discrimination. The Equality Act 2010 contains
a specific exemption to the usual rules on age discrimination in relation to payments in
keeping with the National Minimum Wage and this allows employers to lawfully base
their pay structures for young workers on the National Minimum Wage pay bands and
pay workers different rates. As part of the evidence gathering for the 2018 report the
4LPC should engage with the Equality and Human Rights Commission (EHRC) for an
independent assessment of whether the current age differential wage rates are a
proportionate means to meet a legitimate aim.
3.3. The NLW has opened up a number of discrimination traps for employers. One
example of how employers may inadvertently discriminate is as follows. An employer
paying for example at NMW rates and overtime at 1.5 times basic is paying a
discriminatory overtime rate as the Equality Act 2010 exemption is lost as the rates go
above the minimum.
4. NMW Guidance, Engagement and Enforcement
4.1. GOV.UK does a good job in getting the basics of the NMW across. The BEIS
guidance Calculating the Minimum Wage and Technical Manuals provide more detail
but both are inadequate in providing support to industry and HMRC NMW
Enforcement Officers in correct and consistent application of the law. ALP members
are forced to incur expensive legal bills to counter ill founded, incorrect interpretations
of NMW legislation and disproportionate actions by HMRC NMW Enforcement
Officers.
4.2. The BEIS NMW Policy Team should offer technical support to the Northern Ireland,
Scotland and Wales Agricultural Wages Boards in matters relating to the minimum
wage. The current Welsh order contains apparent age discriminatory overtime
provisions. Base Agricultural Minimum Wages and NMW/NLW should be aligned.
4.3. Trade associations representing businesses operating in low pay sectors should be
able to meet formally and regularly (every 6 months) as a group with appropriate
individuals within BEIS and HMRC to raise and address policy matters. ALP supports
the Director of Labour Market Enforcement’s (DLME) recommendation that
“BEIS/HMRC should review the guidance around NMW in collaboration with
stakeholders to identify and improve problem areas such as pay averaging and salary
sacrifice.” ALP identifies mobile workers, travel to work, start and finish times, work
related deductions and payments, accommodation related provisions and more as
areas that need addressing.
4.4. Trade associations representing businesses operating in low pay sectors should be
able to access and work with NMW Technical Advisors to develop their own sector
relevant guidance and to assist with complex and challenging issues. ALP supports
the Director of Labour Market Enforcement’s (DLME) recommendation that “HMRC
NMW/NLW team should develop a more supportive approach when companies ask for
advice in order to be compliant.”
4.5. LPC is requested to recommend a process whereby industry and BEIS/HMRC may
discuss and agree “technical exemptions” in specific situations whereby the literal
application of NMW legislation has perverse and/or unintended consequences that
impose burdens on business and have a neutral impact on low paid workers; or have a
negative impact on low paid workers. For labour providers, this is particularly with
regard to the provision of optional transport to work for workers at or around NMW.
Previous ALP submissions to the LPC have dealt with this matter in considerable
detail.
4.6. ALP supports the DLME’s recommendation, “Different forms of partnership working
should be piloted and evaluated, primarily through the support of: a. Newham’s
5proposal to target NMW/NLW (testing joint working between HMRC and local
authority); and b. Leicester’s proposal to target the garment trade through focused,
highly visible joint enforcement (testing partnerships with local agencies and
businesses).
4.7. Current NMW name and shame policy is heavy handed and disproportionate and does
not accord with the Regulators Code in that “Regulators should choose proportionate
approaches to those they regulate, based on relevant factors including, for example,
business size and capacity.” The NMW offender name and shame list should be for
those businesses which deliberately set out to pay workers below the NMW rather
than reputable companies who inadvertently fall foul of a technical breach of NMW
where guidance is absent or unclear and who remedy this immediately.
4.8. ALP requests that the LPC convenes a working group with employers and trade
associations to develop proposals regarding the accommodation offset to be
considered by the LPC which:
• Are fair to workers and protects them from exploitative landlords and employers
• Enables employers to invest in developing higher standards of accommodation
for workers
• Enables employers to provide good quality accommodation to workers
• Assists in encouraging supply of labour to the UK
• Recognises the difference where worker must live in employer provided
accommodation or has a choice over taking the accommodation.
5. Premium rate of the NMW/NLW for hours that are not guaranteed
LPC seeks views on Matthew Taylor’s proposal of a premium rate of the NMW/NLW for
hours that are not guaranteed as part of a contract. The problem that this seeks to tackle is
that some workers are subject to erratic and unpredictable working hours and income. The
rationale is that a higher minimum wage for non-guaranteed hours, such as those worked
by zero hour contract workers, could both compensate workers for the additional risk they
bear and encourage employers to offer more stable schedules of work. LPC has also been
asked to consider other ideas that might alleviate the problem.
5.1. ALP is advised by food supply chain employers and labour providers that the
consequence of implementing a premium rate of the NMW/NLW for hours that are not
guaranteed as part of a contract will be directly counterproductive to the objective
intended. Specifically:
• Workers on temporary or zero hours contracts will be dissuaded from moving
to permanent contracts or guaranteed hours contracts because of the drop in
pay;
• Permanent contracts or guaranteed hours contracts will be seen as a demotion
because of the drop in pay;
• Workers on guaranteed hours contracts will ask to transfer to non-guaranteed
contracts for the extra pay available;
• Permanent workers will seek pay increases to achieve pay parity with
temporary / zero hours workers, which, of course, cannot be achieved;
6• Industrial strife will be caused by long term workers being outraged at being
paid less than an inexperienced worker on a non-guaranteed contract on their
first day of work;
• The proposal flies in the face of the principle of equal pay for work of equal
value;
• Legislation will be complex, loopholes will be inevitable, enforcement will be
minimal.
5.2. LPC has been asked to “consider other ideas that might alleviate the problem”.
However, ALP is unclear what “problem” is seeking to be alleviated. Neither the
government nor the LPC has quantified or qualified the “problem”. This makes a
comprehensive response challenging. However:
• The flexible labour market has worked effectively in getting people back to
work following the 2008 crash.
• We are in a near full employment economy. Individual employers are
structuring their organisational design and employment arrangements to best
attract and retain workers. The market is forcing them to. Legislation is
unnecessary.
• CIPD research indicates that “Zero-hours contract employees as happy as
permanent, full-time employees”.
• The Taylor report contains many excellent recommendations (ALP has
submitted to the government consultation on these). However, ALP believes
this particular point to be an area that requires extensive and detailed
research. Knee jerk reactions have unintended consequences and hence are
to be avoided for that reason. Decisions that will have fundamental impacts on
the functioning of the UK labour market should be evidence based.
• Such research should be led by the Office of the Director of Labour Market
Exploitation and should be focused on measures to tackle “underemployment”
such as how to avoid penalising companies for providing longer hours of work
i.e. because of national insurance thresholds it is cheaper to employ two
people on 20 hours per week than one person on 40 hours per week.
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