The National Living Wage Makes Its Mark in UK’s Restaurant Sector

Only a month after the new National Living Wage (NLW) has come into force, it is already causing a storm in the UK restaurant industry, with big high street chains modifying their operations to respond to higher payroll costs.

In February, we discussed how the new measures might affect business, raising concerns that restaurants will end up having to cover expenses by reducing staff benefits. This is exactly what has happened, as a number of large chains come under fire for slashing staff remuneration policies.

Employees bear the brunt

Brands like Café Nero and John Lewis have been forced to reduce staff benefits in order to absorb the higher costs caused by the legal increase in the minimum hourly rate at which staff can be paid, narrowing the range of menu-items offered to staff free of charge during their shifts.

Across all sectors which rely on minimum wage workers, many of the UK’s biggest brands have had to review their remuneration policies, with B&Q, Tesco and Dunelm all reviewing employee staffing and benefits.

“These severe measures, while effective in the short term, are unappealing for customers, staff and the businesses themselves,” Julie Palmer, a partner at services consultancy Begbies Traynor, told the Guardian. “And unfortunately [they] do not offer a long-term solution to the problem.”

Alienating staff

Other chains have been resolute in defying the pressure to cut staff benefits. As some chains become embroiled in stories about changes in tipping policy, Pret A Manger’s Chief Executive has expressed his business’s commitment to employee satisfaction, pointing out that “you simply can’t afford to alienate your staff” – something especially true in large restaurant chains.

So, as unpopular as these practices are, might changing company tipping policies end up being the de facto means of restaurants affording the new National Living Wage? This seems unlikely.

Aside from being unacceptable to many customers and business owners alike, the Government has promised to clamp down on this practice. Sajid Javid, Secretary of State for Business has already come out in opposition.

“As far as I’m concerned, tips belong to the staff. I’m getting increasingly concerned about the practice of some restaurants, and will be taking a serious look into the issues raised.”

Something must give

Even unfair tipping policies see a government crackdown, it is seems inevitable that something must give to bridge the gap between business income and the increased payroll expense caused by the new National Living Wage.

EAT’s decision to stop paying staff for their lunch breaks may just be another in a long line of payroll cost-cutting exercises by the UK’s biggest restaurant chains. The Government’s Low Pay Commission has already indicated that simply economising non-salary benefits is “unlikely to be enough: it [is] clear that for some, the path to 2020 [when the NLW will reach £9/h] will require business models to change significantly”.

George Osborne has said businesses cutting remuneration to pay for the NLW should be “publicly shamed”, claiming that the cuts are not in the spirit of the new legislation. But restaurants have been quick to lay to blame for their new policies on the Government’s own deliberate actions.

The Chartered Institute of Personnel and Development have claimed that the Government was well aware of the likely consequences of the NLW, and were only too happy to let the tough, unpopular decisions be made by business, not the Government.

Regardless of who is to blame, it remains to be seen how the new National Living Wage will affect the restaurant industry in the long term. For further discussion and up to date opinion, speak to Restaurant Property today. Our consultants have expert insight regarding the potential impact of economic factors on the restaurant industry. For more information, speak to us today. Call 0203 820 0079 or email enquiries@rparchive.thisisthetreedev.com to find out.

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