Review of the Minimum Wage

Introduction

The Employment Forum was asked by the Employment and Social Security Committee to consult on various issues relating to the minimum wage and to make a recommendation as to whether a new rate should apply from 1st April 2006. As businesses often negotiate prices and contacts at the year end, the intention is to present consultation outcomes in a public statement during December to allow businesses time to adjust if a new rate is approved by the Committee.

The Minimum Wage came into force on 1st July this year instead of the planned implementation date of 1st April. However, it is intended that in future, the minimum wage will be uprated each year on 1st April, if appropriate, depending on consultation responses and assessment of economic impact.

Consultation method

As the minimum wage had been in force for less than 4 months, it was considered that only a short review would be required to gain an overview of any impact of the minimum wage during that time, and to consider if any uprating is appropriate for April 2006.

A short questionnaire (attached at Annexe 1) was sent to all on the Forum’s consultation database. Respondents were asked to either complete the questionnaire or to submit a separate comment in writing by Thursday 3rd November.

The questionnaire elicited a good response and the Forum was particularly pleased to receive some useful comments from the groups that are most likely to be affected by the minimum wage. Comments were received from 23 respondents, including employer associations, trade unions, and large local employers.

Minimum Wage Rate

It is not easy to determine the consequences of the minimum wage rate in the short time that it has been in force however, from the positive feedback in the consultation responses, the Forum considers that the initial minimum wage level was judged correctly.

The extremes of view expressed in the consultation responses ranged from ‘freezing’ the current rate, to increasing it to £8 per hour. The consultation responses do not provide any hard evidence to suggest that the rate should remain the same for a further year, or that there should be a large increase, but the majority of respondents called for an increase. The Forum was of a consensus that the minimum wage rate should not be frozen at 2005 rates for 2006.

The Retail Price Index currently stands at 2%. The Forum agreed that to wait for the March RPI figure would not give employers adequate notice of any new rate. It is anticipated that the RPI will rise and then fall over the next few months, but will continue to average around 2% over the next two quarters.

Having considered the full range of consultation responses, the individual Forum members provided a view as to what increase should apply and their responses initially ranged from 2% to 3.5%. An average was taken of the percentage specified by each Forum member, which resulted in a figure of 3%. The majority of the Forum approved the recommendation of a 3% minimum wage increase, with the exception of one member who considered a 3.5% increase to be appropriate.

Offsets

The majority view of the Forum was that the offsets and trainee rate should be increased in line with any increases in the minimum wage rate in order to retain proportionality, with the exception of one member who preferred there to be no increase in the offsets.

The majority view of the Forum was that the offsets and trainee rate should be increased in line with any increases in the minimum wage rate in order to retain proportionality, with the exception of one member who preferred there to be no increase in the offsets.

The other members agreed that, if the offsets are not increased to the same percentage as the minimum wage, the effect of any increase in the minimum wage is more unpredictable and likely to have a greater impact, mainly on the Agriculture and Hospitality industries.

Method of Uprating the Minimum Wage

The Forum‘s consultation, undertaken in 2003 revealed that 43% of respondents preferred adjusting the minimum wage rate on the basis of an annual recommendation to the Employment and Social Security Committee, following consultation and having regard to Jersey’s economy.

The Forum‘s consultation, undertaken in 2003 revealed that 43% of respondents preferred adjusting the minimum wage rate on the basis of an annual recommendation to the Employment and Social Security Committee, following consultation and having regard to Jersey’s economy.

In its 2004 recommendation to the Committee, the Forum recommended that it should annually make a minimum wage recommendation following wide ranging consultation, unless significant changes in the employment environment warrant an earlier review. The Forum still supports this recommendation as the preferred option, certainly for the first few years, and therefore did not include a specific question in the questionnaire.

The Forum agreed that responses to the current consultation support a Minimum Wage increase to be applied from 1st April 2006. However, in light of comments received during the consultation, the Forum has given further consideration to the timing of the annual uprating and has agreed that the industries that are likely to be most affected by the timing of any change in minimum wage (Hospitality and Agriculture) should be contacted to discuss.

It was suggested that industries would prefer to know a full year in advance the rate for the following year. The Forum therefore intends to discuss with these industries what time of year would be most appropriate to be informed of changes and implement increases to the minimum wage, in view of their administration arrangements (pay increases, contract changes, tariff agreements, etc).

On the basis of earlier consultation with these industries, April had been considered the best time to uprate the minimum wage, following an announcement in December of the previous year, however if this is no longer practical, the Forum may consider and make an additional recommendation to the Committee in future.

Other Issues

Two other issues of importance were raised during the consultation, regarding the trainee rate and therapeutic work. The Forum has noted the comments and will continue to monitor these two aspects during 2006. Codes of practice have been issued recently on both the trainee rate and therapeutic work and the Forum considers that a full review of the content is not practical at this early stage.

The Forum is aware that issues are arising within certain organisations and that the Employment and Social Security Department is dealing with and keeping a record of referrals in order to assist with future consultation and consideration of any required amendments to the codes of practice. The Forum will be seeking evidence from interested parties in a future consultation

RECOMMENDATION

The Minimum Wage rate should be increased by 3%, to be effective from 1st April 2006.

All other rates should also be uprated in line with the Minimum Wage rate; the trainee rate, the accommodation offset and the accommodation/food offset.

This will result in the following rates to be applied from April 2006;

	Current £	3% Uprating
Minimum Wage	5.08	5.24
Trainee Rate	3.82	3.94
Accommodation Offset	55.65	57.32
Accommodation and Food Offset	74.20	76.43

 

4 Current £ 3% uprating Minimum Wage 5.08 5.24 Trainee Rate 3.82 3.94 Accommodation offset 55.65 57.32 Accommodation and food offset 74.20 76.43 The Forum would emphasize that an early decision from the Committee is

vital in order to allow businesses to prepare their administration agreements for 2006 (contracts, pay increases, tariffs, etc), before the end of 2005.

The Employment Forum

November 2005