The Impact of the National Minimum Wage Increase on Childcare Services

by ParentalChoice
in Working Mum, Working Dad, Family Friendly Companies, Childcare
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Nanny- Childcare Provider - Parental Choice Ltd

Most of us know that from April 2016 the National Minimum Wage (NMW) will be replaced by the National Living Wage (NLW). Workers aged 25 and over will be entitled to an increased hourly rate of £7.20 rather than the current £6.70 that they receive under the National Minimum Wage legislation. This rate is slated to increase incrementally to £9 per hour by 2020. Workers under 25 will continue to receive the National Minimum Wage (NMW) at the prevailing rates.

I don’t think there are many people who would dispute a fair wage for a fair days work but there are knock on effects to this change that many haven’t considered. Whilst in some industries this change will barely make a blip on their wage bill there are others where the increase will be huge such as retail, leisure and hospitality. Whilst some larger companies have already shown willing to absorb the increase in costs and use the change as a tool to evaluate pay structures many other will find ways to rebalance things. This might be by a reduction in benefit offerings, recruitment freezes or in the worst cases redundancies. There are also those who will potentially manipulate employment terms and conditions to avoid the payments or worse, pay off the books in full or part.

There is a further concern that because the NLW only applies to those over the age of 24 age discriminatory recruitment practices will come to the fore creating an unfair and unbalanced work force.

One industry that will be particularly hard hit is childcare providers and where they take a financial hit, so to will the families that use their services with already tight household budgets being squeezed even further.

Children - Children Care ProviderLet’s look at nurseries first. The National Day Nurseries Association estimates that the average nursery wage bill will rise by 10% from next April and by 35% by 2020. It’s not only the workers who earn the current minimum wage that will need an increase, those who are more experienced or qualified will also need to be raised in order to maintain a far and effective pay structure. There is a very real chance of a qualified team leader under 24 being paid less than a 25 year old colleague who has no qualifications and less experience and that is clearly not equitable. There is only one way that these nurseries will be able to fund the increases and that will be by passing them onto parents. If they don’t they will face closing which will put childcare places at a premium and result in prices to parents going up even higher.

Finally the introduction of the NLW is set to further derail the government’s plans for 30 hours of free childcare a week. Research by the Pre-school Learning Alliance has already found the policy could create a £350m funding gap. The average hourly cost paid to nurseries currently is £4.50 which, for many, does not cover their operating costs and they therefore have to manipulate the rules to charge top-up fees. The introduction of the NLW is likely to make the whole scheme untenable for many nurseries and many may elect not to offer the free hours going forward.

Families that have Nannies may also be hard hit by the introduction of the NLW. Often viewed as rich elitists by some this is not the case for many families employing nannies. For ordinary shift workers such as nurses, paramedics, police officers etc. having a nanny is the only childcare option available to them as there is no other provision for non-standard working hours. If a nanny is working a 40 hours week the increase equates to £20 per week (not including potential tax and NI increases) and most families will have to take that from another area of family spending so whilst one family is better off the other is less so. Is it robbing Peter to pay Paul?

It’s ironic that a worker could gain an increase in their own income from the introduction of the NLW and pay it straight back out again because their childcare provider put the fees up to cover the increase to their own staff.

The reality is that whilst the national living wage will be a small boost for many workers for hard- working families who are already struggling to meet high childcare costs things will become even tighter and many might be tipped over the edge to where it no longer becomes financially viable to work. There is a knock on cost to the economy and the work that the Government has done towards getting parents back to work may be eradicated in a vicious circle of pass the parcel that shows no sign of improving.

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