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Preparing your charity for the National Wage rise

The government’s proposed increase to the minimum rate of pay for over 25 year olds is one of a series of measures to address inequality in this country. At 6.2% the rise in the legal minimum wage, rebranded as the national living wage (NLW) four years ago, will take the hourly pay rate from £8.21 to £8.72 – an estimated pay rise of up to £930 a year for a full time employee.

National minimum wage hourly rates will rise across all other age groups:

by 6.5% to £8.20 for 21-24 years olds;
by 4.9% to £6.45 for 18-20 year olds;
by 4.6% to 4.55 for under 18s:
and 6.4% to £4.15 for apprentices.

The age boundaries are clearly defined so employers should check their employees’ date of birth ahead of April. Any errors resulting in claims for unlawful deduction of wages could be costly. Furthermore, the government has the power to issue financial penalties of up to 200% of the arrears owed to each worker.

Compared with 21% of staff in the country overall, more than a quarter of charity staff are on low incomes, according to research by the Living Wage Foundation. Its survey to understand why low pay is so prevalent in the sector, revealed two common barriers to paying the Living Wage:

  • The impact of government cuts on the sector – where contracts are generally given to the provider that has provided the cheapest quote, wages have inevitably suffered.
  • A lack of awareness of the real Living Wage – combined with public perception that charity work should be voluntary or low paid with donor money going to the beneficiaries not the charity worker.

Charities’ staff costs are set to rise by well over inflation (the percentage increase in the NLW is more than quadruple the level of the consumer price index gauge of inflation of 1.4% in December 2019). Finding the additional money may prove difficult and for many charities it will inevitability force a re-examination of activities and costs. Hard choices may have to be made.

A good place to start is an evaluation of your charity’s aims and objectives. This can help determine whether certain activities need to be altered or eliminated altogether. Do actual outcomes show specific objectives are being achieved and money wisely spent?

The increase in staff costs should provide good reason to look at what is really important to your charity. Analysing your financial income and activities can help focus minds. You might consider:

  • What sources of income you currently have, eg trusts and foundations, companies, individual donors, earned, social investments. Do you have diverse income streams within these categories or just rely on one or two donors?
  • Do you operate a full cost recovery of direct and support costs for any core operations of your charity covered by pro-bono support. If you cannot get the full cost of a project from funders make sure it is an activity that will still benefit your charity.
  • Are there other, more cost-effective ways of meeting your charity’s objectives? For example, zero-hour contracts have had a bad press recently but they are ideally suited for those who prefer to work as freelancers. Maybe you could share staff and resources with other similar organisations.
  • With many companies adopting corporate social responsibility programmes for their employees, could you provide an opportunity for volunteers to work within your organisation.

Whilst it may be expected that small to medium charities will be hardest hit, they do have the advantage of being able to respond to challenges more quickly. Take a practical approach, work out what mix of cost saving ideas may be effective for your charity, make any changes necessary and diversify income where possible. Not only will this help with the upcoming wage rise, it should make your charity financial sustainable. Now that’s something worth planning for.

Please let us know if you have any questions or require further information.

Contact Paul Underwood, Director of Morris Crocker Charities Team on 023 9248 4356 or email pu@morriscrocker.co.uk

22/1/20

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REF: MC/NL/1.2