Many construction companies are concerned about the financial impact the National Living Wage( NLW) could have on their businesses. Following the introduction of the NLW in April 2016, all staff members aged 25 and over will now be paid at a rate of £ 7.20 per hour, up from £ 6.70- with the aim to reach £ 9 per hour by 2020. Wayne Lysaght-Mason, managing director at IronmongeryDirect, explores some options to help firms keep financial consequences to a minimum. Currently, trading conditions within the construction sector are quite challenging, with the cost of workers and building materials putting pressure on profitability for many firms. The rising demand for new housing has resulted in soaring prices for building materials, with the Office of National Statistics reporting that brick prices have risen by almost 25 %, cement by almost 17 % and plastic doors and windows by 10 % during the past five years.

And given that the construction industry is facing its biggest skills shortage since 1998, builders’ wages have increased considerably as firms battle it out to attract the best workers from a limited talent pool. According to the Royal Institute of Chartered Surveyors( RICS), the skills shortage pushed industry wages up by more than 6 % in 2015.

‘ 45 % had so much work on they had to turn jobs away’

In light of the new NLW legislation, many firms are likely to feel further pressures to their profitability, particularly as the construction sector is a big employer of workers over the age of 25. So with this in mind, what steps can firms take to keep the effects of the changes to a minimum and ensure that workers’ wages are sustainable?

EFFECTIVE MARKETING WILL INCREASE PROFITS Growth within the sector is quickly rising, particularly as the government tries to combat the current housing crisis in the UK, with its promise to build 200,000 new homes each year by 2020. As a result, the building sector is now picking up and in fact, IronmongeryDirect’ s Annual Industry Review found that work is coming in thick and fast. Of the 600 UK tradespeople surveyed, over half described themselves as very busy throughout 2015 and 45 % had so much work on they had to turn jobs away. Over the next four years, there is a huge potential for growth and profits are expected to soar. This means that although wages for workers over the age of 25 have increased, firms should be seeing a rise in the amount of work coming in which will cover these augmented costs. By investing in effective marketing strategies, construction companies will have a greater advantage when it comes to winning big tenders.

Taking steps to increase brand awareness, such as building a high quality website, promoting services via social media and investing in strategic advertising, will help to bring in new business. In turn, this will help to minimise any effects caused by the NLW.

ATTRACTING YOUNG TALENT BACK INTO THE SECTOR During the 2008 recession, over 300,000 skilled employees were forced to leave the construction profession as work slowed and trade firms struggled to keep their heads above water. But with the recession now behind us and activity within the sector on the rise, the industry is in desperate need of attracting new workers to keep up with demand and restore workforces back to their former size. By 2020, the Construction Industry Training Board( CITB) predicts the sector will need to hire 224,000 new members of staff to meet the government’ s housebuilding targets. With over 622,000 16-24 year olds currently looking for employment,

attracting new talent to the industry is just one option. At present there is a lack of young people entering the sector, but by creating more training and apprenticeship opportunities, this new generation of workers will have the chance to get their foot on the career ladder. And given that the NLW policy only applies to those workers above the age of 25, taking on young apprentices can help lessen the impact of the recent wage rise. Overall, the construction sector appears to occupy a positive economic position, which is continually gaining strength. With the number of building projects on the up, firms should see their profits heading in this direction too. For this reason, it’ s unlikely that many companies will be hit hard by the new wage legislation. Additionally, as the NLW has now improved wage conditions for the nation’ s workers, this could help attract people back into the sector and help overcome the current skills shortage.

www. IronmongeryDirect. co. uk