There is a lot of debate currently about the level of the minimum wage as against the living wage which we are told is about 20% higher and the issue of zero hour contracts. As an employer myself I can say I don't employ anyone at an hourly rate of less than what we are told is the living wage and I certainly don't have anyone on zero hour contracts. However, the question is - as a business should I?

As a business, surely my primary purpose is to make as much profit as possible, but then I like a huge number of smaller businesses/employers also consider ourselves to have a form of social responsibility. This means I will pay a fair market rate for a job, I have a bonus system which pays out if we do well but doesn't penalise if we do badly, we are flexible when it comes to time off for family illness and will often pay a premium to support local businesses. But am I actually being fair?

The compliance service done by accountancy firms now is very seasonal with at least one service line being quiet at any time. Some firms partly address this by aggressive management of holidays but others use zero/low guaranteed hour contracts - so no work in the office no work (pay) for the employee. Many firms use overseas outsourcing as a solution but this is no different to squeezing pay rates, so should we look to pay junior staff the minimum wages? After all there is considerable youth unemployment.

We are told that it is the Government and suppliers of services to Government that are the biggest users of these pay regimes. So let us look at the global economics for the individual and the business.

There is a high probability that someone earning only the minimum wage as opposed to the living wage might qualify for some form of means-tested income support. This cost is not a direct cost of the business, but if the employment cost is less this gives the employer an opportunity to look at the price of the service/product they supply and possibly reduce the price of that. If the employer can reduce the delivery price, then they might win more business which in turn may lead to the need to employ more people.

The same goes for zero hour contracts - presuming the rate of pay is the same, then if there is only wages paid when there is work to do, then again prices might be reduced and as a result the business becomes more successful. If the business is more successful then those on the zero hour contracts will have more work.

When you also consider the employer costs of national insurance, holiday pay and pension contributions shaving even a small amount off the pay rate or increasing the efficiency of work done, the savings can be dramatic.

From the employee point of view, zero-hour contracts may suit their lifestyle and often because of the structure of some benefits, earning a higher hourly rate can sometimes means having less household money.

OK, I can't see me changing my employment attitude in a hurry, but I can appreciate that zero hours and minimum wages may not all be a bad thing. There is, however, a question for Government. If they employ the most people on this form of package and presuming therefore many are on benefits, paid by Government, and extra PAYE is income to the Government then Government might actually save money overall by adopting the living wage! On one proviso - the Government employees don't also get the gold plated underfunded final salary pensions. It's all of our taxes that pay for that.

Jonathan Russell

Partner

ReesRussell

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