What could a change in Government mean for Reward?

With the next General Election upcoming on the 4th July 2024, there is much discussion around each party’s manifesto and policies and what this might mean. ?It has been well documented that, over the last few years, there has been a decline in the overall living standards of the UK population. With many organisations putting employee wellbeing at the forefront of their People plans, it will come as no surprise that there has been a real shift in focus to wellbeing, including around financial support due to the cost-of-living pressures. Many employees feel that they are working harder than ever, but too often for less reward. This may contribute to a change of Government in the UK.

In a recent YouGov poll, 37% stated that if there was a general election held tomorrow, they would vote for the Labour party, with only 18% saying they’d vote for the incumbent Conservatives. These numbers change every day and may be different on July 4th, but if a change in UK Government does happen, then what does this mean for reward principles and practices?

Whilst every party has different pledges and we could write reams about each, statistics suggest that a Labour government could be the most likely to come to fruition. Their very name of ‘Labour’ suggests that we can expect that their policies will be worker orientated, and so let’s explore more.

The Low Pay Commission currently have a remit to recommend the National Living Wage to Government and have suggested that the most likely increase in the in April 2025 would be around 3.9% to ￡11.89 an hour, to keep in line with the goal of 2/3 of median earnings. Labour’s plans have a key focus on boosting wages, making employment more secure and support working people to thrive, by ultimately delivering a genuine ‘living wage’ that provides a decent standard of living. The aim is that, alongside that median wage goal and economic conditions, the minimum wage will also reflect the cost of living, as does the voluntary Living Wage. Hence we can expect another large increase in NMW and NLW in 2025 under Labour. Good news for the millions of employees paid at or close to the legal minimum.

But what does that mean for employers? Many organisations struggle with the affordability to maintain or move closer to the voluntary Living Wage (which, potentially may no be longer required if cost of living is in the NLW). This may have an impact on recruitment overall, potentially deploying fewer hours. Additionally, the impact of large increases to the National Minimum and Living Wages in recent years has squeezed the pay differentials to line management and other slightly higher graded roles, and those with structured pay bands based on expertise or pay increments based on training plans, all of which will further be impacted if there is a move to all employers paying a higher legislated wage. Organisations may start to feel the pressure of being able to remain competitive in the market.

With higher pay and a more level playing field, a key focus for many organisations will need to be innovative at a Total Reward level, and what they can offer to attract and retain talent more than just base pay or policies that are ahead of current legislation.

Under the ‘Fair Pay’ element of Labour’s plans, there is a proposal on sick pay, with a particular focus on those at the lower income end. They aim to strengthen Statutory Sick Pay, by removing the Lower Earnings Limit, therefore making it available to all employees and remove the waiting period, which could be costly to organisations who currently do not offer enhanced sick pay. In many organisational Reward strategies, there has been a real shift to focus on employee wellbeing and health, with access to health care benefits, access to wellbeing resources and enhanced company sick pay.

Labour is also looking at Equal Pay, aiming to end pay discrimination in the workplace, along with the fact that the Gender Pay Gap is narrowing too slowly. They plan much more enforcement and hence many organisations will need to ensure they adhere to any changes that may impact how Equal Pay policies and principles are managed in the future. Not every organisation has robust levelling and job evaluation which is a key start point. Building on Gender Pay Gap reporting, Labour’s manifesto has declared to introduce Disability and Ethnicity Pay Gap reporting for large employers.

The introduction of the EU Pay Transparency Directive is causing lots of discussion in global organisations. This seems like a logical next step for a Labour government. Whilst this currently does not apply to the UK, many businesses will approach this holistically if they do have roles across the EU and indeed the US, therefore enforcing a transparent pay framework across the business as a whole. The impact of moving to a more transparent pay framework can be fairly complex as it heavily relies on accurate levelling and benchmarking frameworks to be in place.

Currently in the UK, there is a three-tier system for employment status, with people classified as employees, self-employed or ‘workers.’ The Taylor Review noted this framework often fails to provide clarity for workers and businesses alike in determining which category people are in and access to various employment rights and protections. Labour aim to move towards a single status of worker and transition towards a simpler two-part framework for employment status. This helps to ensure that workers can benefit from flexible working, for example. HR teams will likely find themselves revising contracts, updating employee handbooks, and providing additional training for managers to understand the implications of the changes.

Rights from the first day of employment is also on the agenda, for example against unfair dismissal, and for parental leave and sick pay. This would mean current People policies and procedures would need to be reviewed. ?This could potentially lead to additional pressure on the tribunal system and impose substantial additional costs on businesses so is not all upside. The more proactive businesses already building this into policies would see their competitive advantage erode.

Additionally, Labour has noted that there is a huge benefit to both employees and the economy to allow flexible working, including opportunities for flexi-time contracts and hours that better accommodate school terms where they are not currently available, by making flexible working the default from day one for all workers, except where it is not reasonably feasible.

Depending on what happens on July 4th and afterwards, there could be significant potential employment law updates upcoming which will impact Reward and HR Polices overall. Reward teams may well have to work harder for their organisation to stand out with the playing field levelled and raised. ?Reward Heads always keep on top of any changes that may impact our clients and contacts in the Reward arena.

Please do reach out to discuss more at [email protected]

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