Zoe Woolacott | 09 Mar 2020

Higher retail rises set to continue?

Many employers in the retail sector are offering greater pay rises than elsewhere in the economy, according to our latest research on pay and conditions in retail. Over a third of all pay increases by retailers were worth 4% or more in 2019 (up from a fifth in 2018), compared to just over a tenth of awards across the economy as a whole. Most staff in the sector are low-paid and this has meant that more pay awards are at the higher end than in other sectors. The introduction of and subsequent increases in the National Living Wage have had a significant impact on the sector, by helping to raise basic pay on the one hand but also bringing about changes to other aspects of reward.

Competitive rates

Our research shows that almost half of retailers set their basic rates above the current statutory floor set of £8.21 by the National Living Wage. The highest rates of pay are found in the food retail sub-sector, where the median minimum hourly rate is currently £9.00 – some 79p (9.6%) higher than the NLW, compared with £8.35 in non-food retail and £8.21 in retail catering. Our monitoring so far for 2020 indicates that many of the large food retailers will continue this trend following the NLW’s rise to £8.72, an increase of 6.2%, on 1 April 2020.

The voluntary living wage (VLW) may also be having more of an effect. This recommended rate is calculated by the Living Wage Foundation as an estimate of the wage needed for a socially acceptable standard of living. It is currently £9.30 an hour outside of London and £10.75 an hour in London for workers aged 18 and over. Aldi already exceeds this with its hourly-rate of £9.40 that took effect on 1 February 2020 – some 10p (1.07%) above the voluntary rate. While not officially accredited, Lidl increased its hourly rate of pay to match the voluntary amount on 1 March 2020 and Tesco has announced plans to increase rates for its hourly-paid workers to at least £9.30 in October 2020 (though the VLW will be subject to its annual review shortly after this, in November, and may well be uprated). Such increases may impact other major retailers as they compete for the same staff.

When it comes to recruitment, retail caterers face the biggest challenges perhaps because the pay on offer is lower than in other parts of retail, with many prospective applicants attracted to the higher rates of pay on offer elsewhere in the wider sector. Retail catering firms also experience some of the highest staff turnover levels in the retail sector.

Offsetting increases

At the same time as base pay has risen, we have also monitored employers taking steps to offset these pay rises by bearing down on other aspects of the reward package. For example, paid breaks were removed at Sainsbury’s in 2018 and at Asda workers on the new ‘Contract 6’ agreement, saw the removal of premiums for most bank holiday working. Staff bonuses are another discretionary element of reward that seems to have been rowed back on in the wake of the higher minimum wage. In some cases, employers, have removed annual bonuses explicitly as a way of offsetting the costs of higher basic pay rates.

We have also observed comparatively higher pay rises for hourly-paid staff at large non-food retailers being offset to a certain extent by lower pay rises, or even pay freezes, for management or head office employees.

With the statutory rate set to increase by the largest percentage since it was introduced in 2016 on 1 April 2020, and a further commitment by the Government to growth in both the level and coverage of the NLW beyond 2020, employers may have gone as far as they can in removing or reducing other terms, and therefore may need to look for alternative methods of managing their response if they’re not to negatively impact recruitment, retention and motivation of staff.

Firms might consider absorbing the increase in the costs (and any consequent impact on profits) in order to compete effectively in labour and product/service markets. Restructuring of workforces is one approach that has become evident in recent months among food retailers, however this may not necessarily be directly linked to the NLW. Morrisons has announced plans to cut 3,000 manager roles following a workforce restructure – however it also plans to create 7,000 frontline jobs in stores that will include skilled butchers and fishmongers. Other firms have reduced headcount, for example, Sainsbury’s reported that it has reduced their senior leader numbers by 20%. Meanwhile Iceland has also begun a review of its management structure.

Pay and Conditions in Retail, 2020

The full report is based on research conducted during 2019. It includes information from 46 major firms across the retail and hospitality sectors in the UK, together employing a combined workforce of nearly 1.2 million people.