Wider Payment of the Living Wage in Scotland – Issues for Consideration

6 The Views of Key Stakeholder Organisations

6.1 This chapter presents the findings from the in-depth interviews with stakeholder organisations representing key sectors and industries. It includes their feedback on the applicability of the findings from the in-depth interviews with Living Wage organisations to different types of businesses and sectors. It also examines stakeholders' attitudes towards the use of procurement processes to encourage the implementation of the Living Wage and their suggestions for how this could be supported.

6.2 A particular point emphasised by stakeholders was that the costs and benefits of implementing the Living Wage, and the ease or difficulty of the implementation process, will vary depending on the size of the organisation and the sector in which it operates. They felt that concern and scepticism towards implementing the Living Wage would be more prevalent among small and medium sized contractors, as they would find it difficult to absorb additional wage costs. These stakeholders were of the opinion that more specific research focussed on the experiences of small and medium businesses is required, including among those who have considered but not implemented the Living Wage.

Perceived benefits of implementing the Living Wage

6.3 Some stakeholders mentioned the importance of increasing employees' salaries in addressing in-work poverty (although it was acknowledged that implementing the Living Wage widely is not the sole tool in addressing in-work poverty). More exceptionally, stakeholders mentioned that the increased purchasing power of employees who are uprated to Living Wage levels and their families would, in turn, benefit the local economy, as they will have higher levels of disposable income. These stakeholders felt that these kinds of benefits were not well communicated to small and medium businesses, and that there would be benefit in focusing more on these types of benefits.

"I think we also make the advice and stuff technical, forgetting people, you know, we often use the phrase we live in a society not an economy, and it's about particularly small businesses who are embedding in their community. (…) I think you need to be saying particularly the local multiplier effect, because people who are on a low wage are going to spend locally, so your business will benefit."
(Stakeholder)

6.4 Another benefit mentioned less commonly by stakeholders was employers being empowered to make a contribution to their community, independent of local or central government.

"[The Living Wage] is also about something that was about communities taking the lead and campaigning for economic justice, and for those arguments, not simply to be taken to government as many arguments for economic and social justice around taxation or welfare. (…) [The idea] was to take those arguments to a different location power, to take it to employers, predominately probably large employers, but organisations that have some power and control in communities."
(Stakeholder)

6.5 Although some stakeholders acknowledged that the implementation of the Living Wage could deliver organisational benefits, the prevailing view was that these benefits would only be realised if paying the Living Wage remained voluntary. This was predicated on the belief that choosing to pay the Living Wage offered organisations a potential commercial advantage that would diminish if their competitors also paid the Living Wage.

6.6 Some stakeholders echoed the view of small employers (and a number of medium sized employers) that implementation of the Living Wage did not benefit the company as a whole, due to the very small number of staff affected. They further added that small and medium businesses would not perceive the benefits in a way that the large businesses would. These stakeholders were of the opinion that indicators such as staff morale, loyalty and engagement may not be as relevant to the small and medium sized businesses as they would be to larger businesses. Also, employee satisfaction may be measured through a very different set of criteria, where adoption of a Living Wage salary would not necessarily have a critical influence on employee satisfaction.

6.7 There was also scepticism among some stakeholders around whether the benefits that the implementation of the Living Wage would bring to the company would be enough to offset the additional cost. Some went on to say that the benefits and costs needed to be quantified to ensure sectors such as hospitality, retail and social care, or small and medium businesses, were making an informed decision about whether to adopt the Living Wage.

" (…) if there was to be potential reduction in say turnover and the costs involved in recruitment and training would that be enough to offset any additional cost or would it not come anywhere near it? (…) I think it would be very difficult to see savings in terms of reduced staff turnover and recruitment cost equalling, let's say 10% of your payroll cost."
(Stakeholder)

"There's not yet enough evidence from hospitality employers who

have initiated the Living Wage, and we can quantify what the wage costs might be, it would be interesting to be in a position to have some authoritative evidence relative to our sector, if introducing the Living Wage did result in reduced staff turnover and more productive staff and reduced, a reduction in the need to train people and reduced recruitment costs. Let's quantify that so that we can look at the pros and cons in a quantified way."
(Stakeholder)

Perceived barriers to implementing the Living Wage

6.8 Some stakeholders were concerned about the potential impact of implementing the Living Wage on an organisation's ability to remain competitive. This was particularly in relation to the hospitality, retail and private childcare sectors but also for other sectors, such as tourism and events. There was a view among these stakeholders that profit margins were already tight for sectors that rely on staff to deliver services to customers, and that additional wage costs would make it difficult for such firm to remain competitive. One stakeholder went on to say that higher wage costs may also deter foreign investment in these sectors.

"(…) the wage and salary bill payroll is the single biggest cost faced by the [hospitality] industry. It is very much a people industry, it's very difficult to automate or make more efficient a lot of the services we deliver. So, typically wages and salaries might account for between 30 and 40% of total turnover. (…) "
(Stakeholder)

6.9 Some stakeholders reiterated the concern of some larger Living Wage employers about the potential for a wider inflationary impact on salaries across the organisation. These stakeholders felt that the inflationary impact may threaten the viability of some businesses in the hospitality and retail industries and the voluntary sector in particular. Increasing end prices wasn't considered an option, due to the competitiveness of the sectors or already tight budgets. A stakeholder gave the example below to indicate how the inflationary impact would affect the costs in one business:

"One company looked at increasing their staff from the national minimum wage. If they were increasing to a Living Wage of £7.65 their payroll would rise by 12.2%. If they maintained the differentials that they have up the seniority and more experienced chain that increases their payroll by 23.5%. I was actually quite alarmed when I looked at the figures that people were showing me about the impact on their payroll and particularly if the differentials were maintained, knowing that payroll costs are the single largest cost, and can be 30 to 40% of turnover."
(Stakeholder)

6.10 A number of stakeholders were sceptical about whether the actions that Living Wage employers said they took to address this barrier would be sufficient for all employers. These stakeholders expressed a view that the employers would need to consider cutting back on other labour costs such as benefits given to the employees (e.g. health insurance, meals, discount on products or services), or they may consider reducing investment in other areas of the company to help manage overall costs.

"As a sector we offer a wide range of benefits in addition to what we pay as an hourly rate. If we were forced into a position of offering a Living Wage, so we focused entirely on the hourly rate and we dismissed all these other benefits, some of these benefits would have to be sacrificed. Because in our view many of our members probably feel as if they can't offer a Living Wage in terms of the hourly rate across all of their staff without there being an impact on either prices rising or on their margins."
(Stakeholder)

6.11 A further concern, raised by some stakeholders, centred on the timing of the Living Wage debate. Some felt that many small and medium businesses were still operating in a fragile economy that only very recently has begun to show signs of recovery. Furthermore, there was a more exceptional view that employers were currently adjusting to accommodate other recently introduced measures such as pension auto-enrolment, and that implementing the Living Wage would place additional burden on employers.

6.12 Stakeholder views on employers' concerns were mixed. On the one hand, some stakeholders felt that businesses tended to overstate the financial costs of increasing employees' wages, citing the implementation of the minimum wage as an example of a case where the actual impact on businesses' financial costs were not as bad as had been predicted prior to the introduction of the legislation.

6.13 On the other hand, some expressed strong concerns that the impact on costs would have a considerable impact on businesses. These stakeholders felt that the implementation of the Living Wage would have a disproportionate impact on companies in industries such as hospitality, facilities management, retail and social care, where staff costs tend to make up a higher proportion of the overall business costs. These industries were often perceived as being very 'price sensitive', which negated the ability of these companies to pass on the cost to customers.

6.14 Further, there was a feeling among some stakeholders that public sector organisations did not have to worry about commercial pressures, such as price and competition, in the same way as the private sector and, therefore, should not force the implementation of the Living Wage on private companies or expect them to implement it as easily as public sector organisations.

"I think also a feeling [among private sector companies] that it's really easy for government to talk about [implementing the Living Wage], because [government] can find the money to pay [its] own workers, but that's not the real world of business. I think some of those more subtle kind of issues are sort of bubbling away in terms of how businesses think about government and its understanding of business."
(Stakeholder)

6.15 A small number of stakeholders also expressed the view that the potential costs outlined by Scottish Government contractors were more tangible and easier for organisations to measure than the potential benefits. Consequently, they felt that this would make it very difficult to encourage organisations to adopt the Living Wage, and that more research was required to quantify both the costs and benefits of implementing the Living Wage in different sectors.

Views on the use of public sector procurement to encourage implementation of the Living Wage

6.16 The concerns raised by some Scottish Government contractors about the use of procurement to promote the implementation of the Living Wage were echoed by some stakeholders, who also felt that there would be a disproportionate impact on some industries, particularly hospitality, facilities management, retail and social care. They expressed a concern about whether the voluntary sector in general, and the social care sector in particular, could afford increasing wages to the Living Wage level. The predominant view among these stakeholders was that contract prices offered by local authorities were already very low and that the majority of social care employers could hardly afford to pay the minimum wage.

6.17 Further, stakeholders tended to take a broader view of the role of the Living Wage in procurement and felt that its consideration should take place within a context of wider social policies. The prevailing view was that procurement processes did not currently do enough to consider issues such as the social or community impact of a contract, the overall investment in staff by contractors or whether the overall cost was sufficient to deliver desired benefits (for example, increased employment and training).

6.18 Some stakeholders went on to say that focussing on wage levels was a distraction from considering these issues and could, potentially, have a negative impact. For example, some stakeholders felt that forcing contractors to pay higher wages could result in contractors reducing employment levels, either through cutting staff or cutting hours, and/or reducing investment in training.

6.19 A number of stakeholders also flagged up a range of potential practical issues in relation to using Living Wage considerations in determining public contract decisions. These included concerns:

• that 'additional bureaucracy' may drive some businesses from opting out of applying for public sector contracts
• about how contractors (and sub-contractors) will be asked to 'prove' that they are actually paying the Living Wage rather than merely asserting so in a bid document
• about whether rules of the payment of the Living Wage applies only to work relating to a defined government contract, or whether it applies to all activity of an individual contractor.

6.20 The consensus among stakeholders was that organisations carrying out public sector contracts would be unlikely to afford to pay all staff working on these contracts a Living Wage unless public bodies were willing to pay more for the contracts.