WELCOME TO THE LOW PAY COMMISSION

1 For this report we conducted a survey of employers in low-paying sectors to examine the impact of the October 2007 upratings of the National Minimum Wage and how businesses had responded and coped with the minimum wage in general. We conducted similar employer surveys for previous reports. The results complement the information we obtained from our research programme, written and oral evidence, and our analysis of official and other statistics. We consider here the key findings of the survey, including the impact of the upratings on wage bills and differentials, staffing, productivity, prices and profits. We also look at other issues, such as the pay of young people and apprentices and annual leave entitlement. The survey questionnaire can be found at the end of this Appendix.

2 As with earlier surveys, we targeted the main low-paying sectors as identified by our analysis of the Annual Survey of Hours and Earnings (ASHE). As set out in Chapter 3, they are the sectors most likely to be affected by the minimum wage. Table A3.1 sets out the relevant eleven sectors, along with their Standard Industrial Classification (SIC) codes.

3 Following a competitive bidding process, we commissioned GfK NOP to undertake the administration of the survey on our behalf. This research company also carried out the survey in 2006 for our 2007 Report. A random sample of firms in the low-paying sectors was selected from the Dun and Bradstreet business database, stratified (i.e. proportionally split) by firm size, sector and region. Smaller strata (large firms, Scotland, Wales, Northern Ireland, and smaller sectors) were over-sampled to allow separate analysis. Over 35,700 postal questionnaires were distributed to employers at the end of June 2008. We received 2,787 responses, although a number were unusable as they lacked information or had no current employees. There were 2,403 valid replies, which gave a response rate of 7 per cent. This was 6 percentage points lower than the response rate achieved in our 2006 survey and 3 percentage points lower than in 2004. As a consequence, the survey is less robust than in previous years and is likely to be less representative of the firms we are interested in. We are very grateful to those businesses that took the time to complete and return the questionnaire.

4 Table A3.1 contains the response rates by sector, showing that the highest rate of response was in the childcare sector, as in previous years, followed by security, social care and food processing. The lowest response rate was from hairdressing firms (3 per cent), indicating that conclusions about this sector should be drawn with particular caution. The response rates were similar across all countries and rough indications suggest there was limited variation by firm size.[1]

Note: Childcare is not specifically identified within UK SIC 2003. The childcare sector firms were identified by examining the business description of social care firms in the Dun and Bradstreet database.

5 It seems likely that those affected by the minimum wage were more likely to respond to the survey than those not affected. The survey results are, therefore, not representative of low-paying sectors as a whole (nor because of the targeted sectors approach are they representative of the economy as a whole). This hypothesis was tested for our Fourth Report (LPC, 2003) using a follow-up telephone survey, which found a significant reduction in the proportion of affected firms compared with the main postal survey. Quantifying this bias is far from straightforward and we have therefore not attempted to correct for it, but we have drawn conclusions from the survey with caution. As in previous years, results are not weighted to represent all employers in the economy. Nevertheless, they do still provide valuable information on how those most affected responded to the National Minimum Wage over the years and enable comparisons to be drawn across sectors and employer size.

6 Table A3.2 illustrates the distribution of responding firms in each sector by size, which was similar to our 2006 survey. Of all respondents, 71 per cent were small firms (1 to 49 employees) and 22 per cent were medium-sized firms (50 to 249 employees). These proportions were in line with the distribution of the original sample and compare reasonably well with the overall distribution of all UK enterprises, albeit with higher proportions of medium-sized and large firms (250 or more employees) to allow for analysis by employer size. There was a noticeably higher proportion of responses from small firms in the hairdressing and childcare sectors (98 and 90 per cent respectively). The cleaning and food processing sector responses contained the largest proportions (13 and 14 per cent respectively) of large firms.

Note: The base is all firms that provided employee numbers (all except 11 firms). Row sums may not sum to 100 per cent because of rounding.

7 Despite the much lower response rate, Table A3.3 shows that the respondents employed nearly 280,000 members of staff in total, which was only around 5,000 fewer than the number of employees covered in our 2006 survey. This reflects the fact that the median number of employees in firms across all sectors was slightly higher than in previous years at 21. Although firms were slightly larger in general, they were still relatively small. The sectoral distribution was similar to the distribution of employee jobs in the low-paying sectors as a whole (based on Office for National Statistics employee jobs series, September 2008). There were smaller proportions of employees covered in the retail and hospitality sectors and greater proportions in food processing and cleaning because of the over-sampling of small sectors mentioned above. In line with the distribution in Table A3.2, the food processing sector had the highest median number of employees per firm with 45 and hairdressing had the lowest with just 5 employees.

Note: The base is all firms that provided employee numbers (all except 11 firms).

8 Overall, 54 per cent of employees working for the respondents were female. As expected, however, the proportion varied considerably across the sectors. Childcare and hairdressing contained the highest proportions of female workers at around 80 per cent, with security containing the lowest at 9 per cent. The firms in our survey also employed disproportionate numbers of young people. The total proportions of 16–17 and 18–21 year olds employed by the respondents were 4 per cent and 13 per cent respectively. The proportion of 16–17 year olds in the hairdressing sector was 16 per cent, which was at least 10 percentage points higher than in any other sector.

9 Overall, 55 per cent of responding firms stated that the October 2007 National Minimum Wage upratings had affected their business in some way. This result was 13 percentage points higher than in 2006, which was surprising given that the increase in the adult National Minimum Wage was lower at 3.2 per cent compared with the 4.1 per cent rise in October 2005. The proportion of affected firms was also higher than reported in our 2002 and 2004 surveys, both of which investigated the impacts from even larger upratings.

10 Figure A3.1 illustrates that the proportions affected by the increases were higher than in 2006 for every sector. Hospitality, cleaning and childcare remain in the top four affected sectors; however, the proportion of hairdressing firms affected increased significantly from 39 per cent in 2006 to 66 per cent in 2008, the second highest rate. The sector with the lowest proportion of affected firms in 2008 was leisure. As in previous years, the proportion of firms affected increased with employer size, from 50 per cent of small firms to 72 per cent of large firms. This was in contrast to official statistics, which likely results from the self-selective nature of our survey and the types of firms we expected to respond.

11 It may be that the current economic climate led more employers to perceive an effect from the National Minimum Wage even though their business may have been affected by other factors. As already stated the results from our survey are highly likely to overstate the effect on business from the rise in the minimum wage.

Figure A3.1 Proportion of Firms Affected by Increases in the National Minimum Wage, 2006 and 2008

Note: The base is all firms that responded to the question (all except 5 firms).

12 Across all sectors, the average proportion of firms’ workers paid at the National Minimum Wage was 27 per cent. Figure A3.2 shows that hairdressing had the highest average proportion at 38 per cent, with cleaning, hospitality and leisure all recording greater than 30 per cent. These four sectors were also among those identified by the 2008 ASHE data with the largest proportion of workers paid at or below the National Minimum Wage. Although the leisure sector had one of the highest proportions of workers paid at the National Minimum Wage, it had the lowest proportion of firms affected by the October 2007 increases in the minimum wage in our survey. Medium-sized firms responding to our survey had the smallest proportion of workers paid at the National Minimum Wage: 22 per cent compared with 28 and 31 per cent of workers in small and large firms respectively. Again, this was in contrast to official statistics, which showed that large firms employ fewer minimum wage workers.

Figure A3.2 Average Proportion of Workers per Firm Paid At the National Minimum Wage, 2008

13 The majority of respondents (55 per cent) reported that the October 2007 minimum wage upratings led to an increase in their total pay bill of less than 4 per cent. This result was less pronounced than the 2006 survey, when 56 per cent reported an increase of more than 5 per cent. This change was likely to reflect the smaller percentage upratings in October 2007 compared with October 2005.

14 The effects on the pay bill varied by sector. Within the childcare sector, which was the most affected sector, around 40 per cent of firms reported an increase of at least 4 per cent. Agricultural sector firms were most likely to report no change, mirroring their position as those employing the smallest proportion of staff paid at the National Minimum Wage. Wages for skilled and unskilled labour in agriculture are regulated by the Agricultural Wages Board (AWB), which uses the National Minimum Wage as the base for the least-skilled workers, giving a plausible reason why employers in this sector attributed less of an effect to the minimum wage.

15 There was a small variation in the effects on firms’ total pay bills across size of firm. Large employers had the highest proportion of firms reporting an increase (88 per cent); however, the majority of these reported an increase of less than 4 per cent.

16 The overall impact on a firm’s wage bill as a result of the rate increases could be caused by a number of different interacting factors. To investigate this, our survey examined: why pay rates increased; whether differentials were affected; and whether staffing practices changed (i.e. changes in the number of employees, number of hours worked or additional payments).

17 Of all the respondents that increased the pay rates of staff as a result of the October 2007 increases in the National Minimum Wage, 47 per cent did so to comply with the new rates (see Table A3.4). Over half of respondents in the childcare, cleaning, hairdressing, hospitality and leisure sectors reported that they increased rates to comply. These sectors were those with the highest proportion of workers paid at the National Minimum Wage and were roughly in line with those with the highest incidence of firms affected by the increase. Overall, the proportion was lower than in 2006, when around three-quarters of firms in these sectors reported compliance as the reason for increasing pay rates.

18 The second most likely reason for increasing rates was to maintain pay differentials for higher grade staff (20 per cent of all respondents). This was followed by maintaining the lowest pay rate and maintaining pay differentials within the same grade (18 and 15 per cent respectively). In 2006 the proportions were all higher at 30 per cent, 42 per cent and 40 per cent respectively. Childcare had the highest proportional response for these three questions in both surveys. Agriculture reported low responses for all reasons, again likely to be due to the AWB, which was listed as an ‘other reason’ on some returned questionnaires.

Note: The base is all firms that were affected by the National Minimum Wage increases in any way. Respondents were able to give any number of answers, therefore rows do not necessarily sum to 100 per cent.

19 Large employers in our survey were noticeably the most likely to increase rates to comply with the upratings (two-thirds of respondents affected in any way by the October 2007 increases). Large firms also had the highest proportion of workers paid at the minimum wage. Small employers affected by the October 2007 increases were least likely to report any of the reasons offered in the questionnaire as the cause of increased rates.

20 There was a very low response (only 28 firms) to the question requesting the lowest and highest hourly pay rates that firms increased to maintain pay differentials as a result of the October 2007 increases. The average rates that were increased ranged from around £5.50 for the lowest to nearly £7.00 for the highest. This result tentatively showed that the impact of the upratings did not extend too far up the pay scale. Official data support this conclusion, given that the difference between the increase in hourly earnings and the increase in median earnings was positive up to around the 25th to 30th percentile (see Chapter 2). As we would expect, the most common lowest rate that was increased was the adult minimum wage at £5.52 and all lowest rates reported were above the 16–17 Year Old Rate.

21 As a result of the October 2007 increases in the National Minimum Wage, Table A3.5 shows that the most common change made by affected firms was to reduce overall staffing levels. This was reported by 29 per cent of firms, which compared with 34 per cent in 2006. Equal proportions of firms reported reductions in basic and overtime hours (23 per cent), again both slightly lower than in 2006. A reduction in ‘other payments’ such as overtime rates, incentives, bonuses, commission and tips was the least likely change, involving only 12 per cent of affected firms. Few firms reported increasing numbers of staff, hours or payments, but around 3 per cent of firms increased ‘other payments’.

22 Hospitality was the sector most likely to reduce levels of all aspects covered by our survey, the most common being a reduction in overall staffing levels, as reported by 40 per cent of hospitality firms. This sector was followed by hairdressing and retail, which were more likely than the other sectors to reduce both staff levels and basic hours. Firms in the leisure sector stood out as by far the least likely to decrease ‘other payments’. There was little variation by size of firm, although large firms were least likely to decrease any of the listed staffing practices.

Table A3.5 Changes Made as a Result of the October 2007 Increases in the National Minimum Wage, 2008

Note: The base is all firms affected by the October 2007 increases in the National Minimum Wage and that responded to each question (around 47 per cent). Other payments described as ‘overtime rates/ incentive payments/ bonuses/ commission/ tips etc.’; non-wage benefits examples given were meal vouchers and paid breaks.

23 Overall, 85 per cent of respondents reported that the October 2007 increases in the National Minimum Wage did not lead to any benefits for their business. The most common benefit, reported by 11 per cent of affected firms, was higher staff motivation, followed by lower staff turnover (9 per cent) and faster filling of vacancies (6 per cent). This pattern was also seen in 2006, albeit with a slightly higher incidence of perceived benefits. Only 3 per cent of firms reported that a lower level of sick leave had been a benefit to any degree. Wherever a benefit was recorded, the vast majority were described as ‘slight’ as opposed to ‘significant’. The distribution of benefits did not vary greatly by size of firm.

24 The proportion of firms reporting benefits varied by sector. As in our 2006 survey, cleaning and security contained the highest proportions of firms benefiting from lower staff turnover (18 and 15 per cent respectively). Again, mirroring 2006, hairdressing firms were most likely to acknowledge higher staff motivation. This was presumably a result of the high proportion of workers paid at the minimum wage and hence receiving the largest pay rise from the upratings. The social care sector was noticeably more likely to see vacancies being filled faster; 12 per cent of social care firms reported this benefit.

25 Table A3.6 contains the most significant impacts on business as a result of the October 2007 increases in the National Minimum Wage. It identifies that the greatest change was reduced profits, as experienced by 65 per cent of firms. This was down from 78 per cent in 2006. An increase in prices was the second most likely impact (47 per cent of all firms). To a lesser extent, firms reported increases in measures to control labour and non-labour costs and increases in the use of new technology or processes, products or services, and unskilled or unqualified labour.

27 There was less variation by firm size than recorded in the 2006 survey; however within the 2008 results:

Note: The base is all firms that responded to the question (around 47 per cent).

28 Our 2008 survey found that 14 per cent of all responding firms had age-related pay structures (see Figure A3.3), a result that had not changed since 2006. Once again, hospitality had a significantly higher proportion of firms with age-related pay structures: 32 per cent in 2008 compared with 30 per cent in 2006. The sector with the lowest proportion was security, with just 2 per cent in both surveys. Small firms were half as likely to have age-related pay structures as medium-sized or large firms.

29 As demonstrated in Figure A3.4, within each age group the largest proportion of respondents reported the relevant National Minimum Wage as their minimum rate for each age group. At least 22 per cent of respondents reported a minimum pay rate at or above the National Minimum Wage applicable for the next age group. This was a slightly lower proportion than in 2006, although use of the adult rate continued to increase with age. Most noticeably for 21 year olds, 47 per cent of respondent firms paid at least the adult minimum wage.

Note: The base is all firms with age-related pay structures that responded to the question (around 10 per cent).

30 Figure A3.5 shows that half of respondents with age-related pay structures reported that workers were only entitled to the full adult rate from age 22. In comparison with the results from our previous surveys, respondents were making more use of the 16–17 Year Old Rate and Youth Development Rate. For example, workers in only 27 per cent of surveyed firms were entitled to the adult rate between the ages of 18 and 20. The equivalent proportion was 32 per cent in 2006. In 2004 workers in 46 per cent of firms were entitled to the adult rate at age 18. There were too few responses to provide reliable results by sector.

31 The majority of firms stated that the October 2007 increases in the National Minimum Wage did not lead to either an increase or decrease in differentials in pay rates between age groups, although the results did vary by size of firm. Medium-sized employers were most likely to increase differentials in pay rates (17 per cent), with large employers least likely. Conversely, large employers were most likely to decrease differentials in pay rates (15 per cent), with medium-sized employers least likely. Again the number of respondents was too few for a reliable sectoral breakdown.

32 Overall, the 2007 increases in the National Minimum Wage rates did not make firms either more or less likely to employ workers in different age groups. Over 90 per cent of respondents reported that the increases had no impact on the likelihood of employing workers in the 16–17, 18–21, or 22 and over age groups. This compares with a maximum of 83 per cent in 2006, which was likely to reflect the smaller proportional increases in the rates in 2007 and the fact that the upratings were similar for all three rates in 2007 but different in 2005. In 2006 around 8 and 13 per cent of respondents reported that following the increases they were more likely to employ 16–17 and 18–21 years olds respectively. The equivalent figures in 2008 were only 4 and 5 per cent respectively. Similarly, the proportion of respondents in 2006 reporting that following the increases they were less likely to employ workers aged 22 and above decreased from 14 per cent to 6 per cent.

33 Overall, 13 per cent of responding firms employed apprentices. This was 3 percentage points higher than in 2006. There remained a large amount of variation across the sectors, which is shown in Figure A3.6, ranging from 48 per cent of hairdressers to only 2 per cent of textile firms. Generally, the proportions employing apprentices were higher than in 2006. The key sectors that offered apprenticeships were hairdressing, childcare and retail. The following analysis focuses on these sectors.

34 With the exception of hairdressing, there were similar proportions of apprentices aged 16–17, 18, and 19 (ranging from 20 to 27 per cent) within each sector. Overall, only 10 per cent of apprentices were aged 22 and above. Apprentices employed by respondents in the hairdressing industry had a significantly different age distribution to all other sectors. The proportion of 16–17 year olds was 46 per cent, over twice as high as elsewhere, albeit lower than the 53 per cent recorded in 2006. In general, there was a shift to employing slightly older apprentices since our 2006 survey.

35 The average lowest basic hourly pay rate for employed apprentices in different years of study varied by sector (see Figure A3.7). Respondents in the hairdressing sector paid on average the lowest starting rates for apprentices in all years. The retail sector was most generous in years two and three, but in year one, on average, the most generous was childcare.

Figure A3.7 Average Lowest Basic Hourly Pay Rate for Employed Apprentices, by Year of Study, 2008

Note: The base is all firms employing apprentices that responded to the question (around 7 per cent).

36 Within the responding firms, tips were common only for hairdressers, whereas overtime and bonuses were most likely to be offered within the retail sector. Few respondents reported providing any other types of additional payment.

37 On the whole, as shown in Figure 6.6 in Chapter 6, three-quarters of respondents stated that the current exemption regime for apprentices did not affect their decision to employ apprentices. Following earlier trends, hairdressing recorded the largest proportion of firms (53 per cent) that were more likely to employ apprentices as a result of the exemptions. This was followed by the childcare sector with 34 per cent.

38 In October 2007, statutory annual leave entitlement increased from 4.0 to 4.8 weeks, including public and bank holidays. This meant it was legitimate to give just 16 days’ annual leave (if 8 public and bank holidays were provided in addition). In April 2009, the legislation changed again and entitlement was raised to 5.6 weeks. Our latest survey was carried out in the summer of 2008.

39 The majority of surveyed firms (59 per cent) paid between 20 and 23 days’ leave excluding public and bank holidays (see Table A3.7). Around 10 per cent of firms paid fewer than 20 days but staff in 9 per cent of firms were entitled to at least 28 days. Large employers were far less likely to pay fewer than 20 days’ paid leave, with only 3 per cent of firms doing so. Nevertheless, in our sample it was the smaller firms that were generally the most generous, with the highest proportions paying 24 to 27 days and 28 days or more. There were too few responses to reliably break them down by sector.

40 Firms in general (79 per cent) did tend to provide paid leave for public and bank holidays (or alternative days off in lieu) in addition to their statutory annual leave entitlement. This result tallied with our 2006 survey. Hospitality and security were the two sectors least likely to provide paid public and bank holiday leave in our 2006 and 2008 surveys, although provision in both sectors was higher in 2008. Food processing, retail, and textiles were the three sectors most likely to provide paid leave on public and bank holidays – the sectors most notable for some union coverage. Again this was the same result in our latest two surveys.

41 There are eight public and bank holidays in England and Wales, nine in Scotland and ten in Northern Ireland. Around 80 per cent of responding firms in England and Wales that provided paid leave on public and bank holidays paid the full eight days (see Figure A3.8). The remaining firms paid fewer. Around 29 per cent of equivalent Scottish firms paid their full nine days as paid leave, and 27 per cent provided the full ten days in Northern Ireland. Of all English firms providing paid leave on public and bank holidays, hairdressing and hospitality contained the highest proportions of firms paying less than the full eight days (see Figure A3.8).

Figure A3.8 Public and Bank Holiday Paid Leave Entitlement, by Country and Sector (England Only), 2008

Note: The base is all firms providing paid leave on public and bank holidays that responded to the question (71 per cent; 49 per cent England).

42 The overall proportion of firms affected by the increase in statutory leave entitlement in October 2007 was 30 per cent, with 48 per cent of those seeing an effect of only 2 per cent or less on the wage bill and 19 per cent seeing an effect of 10 per cent or more (see Figure A3.9). For those firms in which all employees were entitled to the full four-day increase, we estimated that the direct cost was likely to be equivalent to no more than 1.6 per cent of the wage bill (LPC, 2008).

43 Figure A3.9 shows that the textiles sector reported the lowest proportion (14 per cent) of firms affected by the October 2007 increase in statutory leave entitlement and the highest proportion (61 per cent) of those with the smallest increase (2 per cent or less) to their wage bill. Textiles was among the sectors most likely to provide paid leave on public and bank holidays and to pay the full set of days in both our 2008 and 2006 surveys. Although cleaning reported the highest proportion of affected firms (56 per cent), the sector did not stand out as one of the least likely to provide paid leave on public and bank holidays in the last survey. Nor was it highlighted as a sector offering the fewest number of paid days. Hospitality, on the other hand, reported the second highest proportion of affected firms (51 per cent) and did stand out in 2006 and 2008 as one of the sectors least likely to provide paid leave on public and bank holidays. It was also highlighted as the least generous sector in the 2006 survey in terms of the number of days’ paid.

Figure A3.9 Proportion of Firms Affected by the October 2007 Increase in Statutory Leave Entitlement and Impact on Wage Bill, by Sector, 2008

Note: The base is all firms that responded to the question (98 per cent; 23 per cent provided effect on wage bill).

44 Figure A3.10 illustrates that, across all sectors, higher proportions of firms expected to be affected by the increase in statutory leave entitlement in April 2009 compared with the proportions affected by the October 2007 change. The proportion of all firms expecting an effect increased by 17 percentage points to 47 per cent. Within these firms, a smaller proportion expected an increase in their wage bill of 2 per cent or less and a larger proportion expected an increase of 10 per cent or more. Although a larger proportion of firms affected would be expected following the April 2009 change, the impact on the wage bill would not be expected to be higher than the 1.6 per cent estimated for our 2008 Report.

Figure A3.10 Proportion of Firms Expecting to be Affected by the April 2009 Increase in Statutory Leave Entitlement and Estimated Impact on Wage Bill, by Sector, 2008

Note: The base is all firms that responded to the question (97 per cent; 34 per cent provided effect on wage bill).

45 The prominent sectors were similar to those in Figure A3.9, with textiles firms least likely to be affected by the change and cleaning firms most likely. The largest increase in the proportion of firms expected to be affected by the change appeared in the hairdressing sector, an increase of 33 percentage points to 65 per cent. In our 2006 survey, hairdressing firms were equally likely to provide paid leave on public and bank holidays as firms in general. In 2008 they were most likely to pay less than eight days.

46 In our previous surveys the social care sector was asked additional questions on the provision of public sector services. For our 2008 survey we decided to open the questions to all respondents, giving examples such as cleaning for schools or hospitals and care homes for local authorities or health trusts. Around a third of responding firms in the cleaning, security and social care sectors provided services to the public sector (see Figure A3.11). This compared with 5 per cent on average for other sectors. Because of this large difference, the analysis here will focus on those three sectors.

47 Over half of firms that provided public sector services in the cleaning and security sectors sought to renegotiate contracts as a result of the October 2007 increases in the National Minimum Wage. Within social care, around 4 in 10 firms sought to renegotiate.

48 Cleaning firms that provided public services were arguably the most successful in renegotiating their contracts in total, with around three-quarters at least part successful (see Figure A3.11). Security firms reported the highest proportion of fully successful firms. Although a slightly higher proportion of the social care sector provided public services, their negotiations were the least successful, with two-thirds reporting an unsuccessful result. Information from social care associations confirmed this result, as they claimed that funds provided by Local Authorities did not always increase in line with upratings in the minimum wage, as set out in Chapter 3.

Figure A3.11 Proportion of Firms Providing Services to the Public Sector; Result of Renegotiated Contracts as a Result of the October 2007 Increases in the National Minimum Wage, 2008

Note: The base is all firms that responded to the question (99 per cent; 6 per cent provided result of negotiation).

49 Reflecting the previous results, the social care sector contained the largest proportion of firms that, through renegotiation, did not recoup any part of the increased pay bill due to the October 2007 increases in the National Minimum Wage. Cleaning contained the largest proportion of firms that recouped at least 25 per cent of the pay bill increase.

50 We must exercise caution in the use of the results of our survey because of the low response rate, its targeted approach and the caveats discussed above. It provides valuable information, though, on how the firms most affected by the October 2007 National Minimum Wage upratings were affected and how they responded to those effects. It also allows comparisons to be drawn over time across sectors and employer size. The survey covered nearly 280,000 members of staff from 2,403 firms. There were only slightly fewer employees covered than in the 2006 survey.

51 Of all the responding firms, 55 per cent said that the October 2007 National Minimum Wage upratings had affected their business in some way. This result was higher than in 2006, which was surprising given that the percentage increases in the adult National Minimum Wage were lower than in October 2005. On the other hand, over half of affected firms reported an increase in their wage bill of less than 4 per cent, which was less pronounced than in 2006. Hairdressing, cleaning, hospitality and leisure had the highest average proportions of workers at the minimum wage, which was in line with official statistics.

52 The most common reason for increasing pay rates was to comply with the minimum wage, followed by maintaining pay differentials for higher grade staff. To account for the increased wage bills, a reduction in overall staffing levels was the most likely way for firms to respond, with the hospitality sector having the highest proportion of firms changing a range of staffing practices. The majority of respondents reported no specific benefits from the National Minimum Wage upratings and around two-thirds had experienced reduced profits.

53 In our 2008 survey the proportion of firms with age-related pay structures remained the same and the hospitality sector was still the most likely to use them. The use of the adult rate continued to increase with age, although firms were making more use of the 16–17 Year Old Rate and Youth Development Rate.

54 The proportion of firms that employed apprentices has increased slightly since 2006. The hairdressing, childcare and retail sectors were the main employers of apprentices. Hairdressing employed the highest proportion of 16–17 years olds and paid the lowest rates, although their apprentices did tend to get paid tips in addition. Our survey identified an unexpected shift towards employing older apprentices.

55 Overall, firms tended to provide paid leave on public and bank holidays. Hospitality firms were least likely to provide them and, within England, were least likely to pay the full eight days. They were also among the firms most affected by the October 2007 increase in statutory leave entitlement and expected to be among the most affected in April 2009 when it increased once more.

56 The cleaning, security and social care sectors were by far the most likely to provide services to the public sector. Social care was the least successful sector at renegotiating contracts, owing to issues concerning funding from Local Authorities.

[1] Note that precise response rates by employer size are not available as the number of employees was unknown for some cases before the questionnaires were returned.