‘Born free – now I’m expensive’: Managing increasing staff costs and a dynamic workforce

2 May 2017 , 10:00am

The world of work is changing. Non-standard, atypical employment arrangements designed to be agile enough to meet the ebb and flow of business demands are becoming more commonplace and we are seeing a marked rise in the use of zero-hours contracts, partnership models, flexible hours, home-working and consultancy arrangements. So, what does this mean for employers in the luxury sector and how does the new world of work impact on staffing costs and HR practices?

Are employment costs increasing?

Undoubtedly the answer is ‘yes’.  Reasons for the increase include:

  • Successful claims for ‘worker status’ made by individuals previously regarded as self-employed or consultants. Worker status carries entitlements to paid holiday, pension and national minimum wage in addition to PAYE liabilities so the costs are significant.
  • A general upward pressure on wages triggered by the National Living Wage for over 25s. The luxury sector needs to attract and retain the highest calibre staff representing an additional premium.
  • Recent legal decisions holding that overtime and commission must be included in holiday pay. This significantly inflates entitlement to holiday pay for commission based workers in the luxury sector.
  • The imminent abolition of popular salary sacrifice schemes such as those for company cars, workplace gyms, healthcare, private medical insurance, mobile phones and white goods.
  • Mandatory gender pay gap reporting requiring some employers to address gender pay gaps.
  • The Apprenticeship Levy.

The ‘worker status’ issue

One of the biggest concerns at the moment is worker status especially for businesses whose workforce models rely on temporary staff or self-employed contractors. Andrew Rayment, employment partner at Walker Morris, comments, “This is a huge issue for many employers. It is notoriously difficult to distinguish between the genuinely self-employed and those who are technically classified as ‘workers’. It matters because worker status gives individuals rights which do not apply to self-employed individuals, including the right to receive the national minimum wage, the right to paid holiday and often to pension auto-enrolment.  The employer can also become liable for PAYE. Recent Employment Tribunal decisions and the Court of Appeal decision in Pimlico Plumbers have shown a very strong trend towards finding worker status where the individual is subject to the control and direction of the employer regardless of what the contractual documents might say to the contrary”.

HMRC is also concerned that any ‘grey area’ over worker status could lead to missed tax receipts and has, in consequence, introduced revised IR35 laws to make public sector employers responsible for tax and NI which was previously the responsibility of the contractor operating via a personal service company.  This interventionist approach may well be rolled out into the private sector over time.  Assuming a default employment/worker relationship where there is any element of personal service subject to the employer’s control represents the general direction of travel in this area.

The take-home message is that engaging people on an atypical, zero-hours, casual, temporary, self-employed or consultancy basis will not necessarily absolve the employer of responsibilities and could lead to significant liabilities (taxation, NI and employment) later down the line. High end employers are no more immune to worker status claims than brands such as Uber or Citysprint and are potentially more negatively impacted by any associated reputational damage. 

Andrew comments: “Given these shifting sands, a full review of the workforce, working practices and documents is highly advisable to assess any risk areas and take steps to mitigate them where possible”.

What steps can be taken to manage increased staffing costs?

With appropriate planning and forethought it is possible to make changes to workforce structures and working patterns with the objective of reducing costs or absorbing the increased costs into sustainable budgets.  This is where your employment law advisers can add real value.  Some of the options available include:

Workforce flexibility

  • Higher payroll costs may see the need for a greater degree of workforce flexibility.  It may be expedient to use zero-hours, annualised or lower base hour contracts or to restructure shift patterns and premiums.  Savings might be made by staggering shift start and finish times.  In addition, existing overtime arrangements may need to be reassessed.
  • It may be worth looking at supervisory structures.  Are they top-heavy? If so, consider flattening supervisory structures to reduce the number of higher paid supervisors.  Non-supervisory staff could be given additional responsibilities and new, higher expectations of non-supervisory staff could be introduced, perhaps in return for additional benefits or flexibilities. Andrew has observed that many employees welcome structure flattening exercises as they can lead to a more engaged, democratic workforce culture.
  • Consider whether current contractual arrangements and shift patterns provide the right amount of flexibility for your organisation and to identify any potential payroll savings. 

A word of caution: always take legal advice if significant changes to contracts of employment or overtime arrangements are envisaged.

Getting value for money from staff

Sensitively tuned margins in the luxury sector mean that as pressure on margins continues to increase it will be as important as ever that employers are getting the best possible value from staff.  Performance management procedures need to be effective and managers and supervisors need to be well versed on how to use them.

Luxury retailers, by definition, need high quality staff and as competition for staff increases, many employers are seeking to differentiate themselves by providing new and innovative reward and recognition programmes.

Now is a good time to check that your organisation’s performance management and staff retention policies are working.  It is as important as ever to ensure that the correct standards and expectations are set and maintained.   Conversely, ensure that staff performing above expectations are recognised and that staff retention strategies are working effectively.

Walker Morris LLP has a wealth of experience in advising on these issues. If you would like to discuss any of these issues in more detail please contact David Smedley or Andrew Rayment.