- Employers can use paying the living wage as a recruitment or retention tool to make them an attractive organisation.
- For those employees who are paid the living wage, it can mean the difference between being able to afford the things they need for a decent standard of living or not.
- As the living wage is higher than the national living wage, some business may face challenges introducing it if they genuinely cannot afford to pay the higher amount.
In April 2016, the UK government introduced a higher minimum wage rate for employees over the age of 25, now for those over 23, known as the national living wage, which currently stands at £8.91 per hour. However, the Living Wage Foundation calculates what it calls the real living wage according to the costs of living, and provides a voluntary benchmark for employers to ensure their staff earn a wage they can survive on. This is £9.50 per hour, or £10.85 if staff are based in London. Organisations can sign up to become a living wage accredited employer meaning they pay employees this higher rate.
Benefits of the living wage
Looking after staff is more than just policy and procedure, and employers that make a commitment to paying the living wage can make a difference to families across the country.
Alistair Dornan, director at Gallagher, says that a trend of the Covid-19 (Coronavirus) pandemic was that some employers need to present their purpose effectively to their customers, staff and local communities when seeking to differentiate themselves from others. “A commitment to paying the living wage establishes brand identity, and actively demonstrates [an organisation’s] purpose. Alongside effective financial education, this has the potential to help millions of people to reduce the impact of poverty and take a positive financial decision for them, their families and their futures,” he said.
The living wage can provide staff with a base level of appreciation and protection, an acknowledgement from their employer that the cost of living is much higher now than in previous years.
Jack Curzon, consulting director at Mercer Marsh Benefits, explains that he sees it as a basic and minimum amount of pay for the employee. “It’s a guarantee of a set level of earnings, but not always for a set level of work in some industries. Employers can use paying the living wage as a recruitment or retention tool to make them seem like an attractive [organisation].
“It’s also good for career progression leverage, offering incentives for pay rises at each level to reach beyond the living wage rate as they climb the ladder. Showing how quickly people can sometimes progress in terms of pay and their career can be motivating for employees as a reward,” he says.
Paying a fair wage
Paying the living wage can encourage employees to work for organisations that are proactively paying more than the statutory minimum, which can increase motivation and retention.
Vickie Graham, business development director at the Chartered Institute of Payroll Professionals (CIPP), which is a living wage employer, comments that the living wage provides a reassurance that staff are valued by the organisation. “It demonstrates that [the] employer will pay a fair day’s pay for a day’s work, beyond that which is required of them by statute. For those paid the living wage, it can mean the difference between being able to afford the things that [they] need for a decent standard of living or not, things such as healthy food,” she says.
The living wage can also help to reduce levels of stress and anxiety among employees, and offer relief from finanical struggles. They may also be able to make the most of having a greater disposable income, says John Harding, employment partner at PricewaterhouseCoopers (PWC).
“Staff are also able to take advantage of being able to earn more money for less hours worked, reducing their work time and being able to improve work-life balance,” he adds.
Challenges to introducing the living wage
As the living wage is higher than the national living wage, some business may face challenges introducing it if they genuinely cannot afford to pay the higher amount.
It can be an unbudgeted expense for some employers, and have implications for pensions and benefits, while Curzon states that the living wage might not mean as much for those with unstable or contracted working hours as they won’t see all of the benefits of it.
“There’s a lot of weighting on cities to pay a higher living wage. However, someone at a London-based [organisation] who lives miles away in a cheaper area might not then be paid the London living wage, as they don’t live there and are not seen to need it as much. Ethics come into question too, as sometimes if staff are hired through agencies, which can take a cut, some are left with a salary below the living wage,” Curzon adds.
While the Living Wage Foundation does not carry out annual compliance audits of the living wage, it does have an anonymous whistleblowing scheme for staff, and can ask employers that have signed up for evidence that they are compliant, such as providing payslips.
Harding explains that the living wage also applies to those contractors who work regularly, for two or more hours a week in eight or more consecutive weeks a year. “In practice this can be a challenge in ensuring that contractors are tracking how many hours their staff are working for [the employer], and that where they are not living-wage accredited, they ensure that their staff are paid at least the living wage while working for you,” he says.
The living wage can bring many benefits to an employer’s pay and reward strategy, as well as its engagement and motivation aims. But it must be carefully considered to ensure that paying the living wage doesn’t bring other financial challenges to the business.