Living wage increased - costs and benefits to employers

Living wage increased - costs and benefits to employers

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Author: Aidan McGuire

The UK's Living Wage recently increased by 20p to £7.65 an hour outside of London and by 25p to £8.80 per hour in London. This equates to a pay rise of over £450 for Londoners working full time.

Whilst this is great news for those receiving the Living Wage, how does it affect Living Wage employers and the companies who contract with them?

What is the Living Wage?

The Living Wage, promoted by the Living Wage Foundation, is an hourly rate calculated with reference to the basic cost of living, the aim of which is to pay full time workers enough to lead a 'decent life' without having to hold down multiple jobs in order to buy food and pay rent. The amount is far higher than the National Minimum Wage, currently set at £6.31 for those aged over 21, and the recent increase shows that the difference between the two is growing.

Unlike the National Minimum Wage which is set by the Low Pay Commission, the Living Wage is split into two: the London Living Wage and the 'National' (i.e. outside of London) Living Wage. The National Living Wage is set by the Centre for Research in Social Policy at Loughborough University, whilst the GLA have set the London Living Wage since 2005.

What are the benefits of being a Living Wage employer?

  • Firstly and most positively, research shows that Living Wage employers have far lower staff turnover rates. Indeed Barclays have boasted of a 92% retention rate for cleaners compared to a 35% industry average.
  • An employee undertaking only one job is likely to be more alert and able to work to a better standard than an employee who needs to undertake multiple jobs and work longer hours to make ends meet.
  • Businesses have the option to choose to contract only with providers who are either Living Wage employers themselves or who agree to pay their staff the Living Wage. Refusing to pay your staff the Living Wage could therefore prevent you from seeking winning contracts with Living Wage businesses, the likes of which include Barclays, EY, KPMG, JP Morgan, Legal & General and a large number of councils, education providers and third sector employers (433 accredited employers on 4 November 2013).

What are the potential problems for a Living Wage employer?

  • The rise in the Living Wage may be more generous than that which you propose paying your other staff who already earn above the Living Wage. Therefore a supervisor may find themselves receiving a nominal or no pay rise, whilst the staff they supervise on the Living Wage enjoy a larger rise, resulting in the supervisors feeling that they are not being properly rewarded or appreciated.
  • An employer, who increases the pay of their own employees, also needs to consider the other workers undertaking jobs for them. These employees must also be covered by the Living Wage. Thought therefore needs to be given to those working in shared buildings that are provided with shared services such as cleaners and security staff. The Living Wage Foundation suggests that tenants should seek to group together to convince building management companies to increase the pay of their workers, or if that fails, to seek permission to supplement the workers pay whilst they are working for you. From an employment perspective, agreeing to this raises a risk to the management company that they will become bound by the pay rise even if the tenant leaves, whereas if the tenant was to pay the uplift directly, they would risk being found to be the employer rather than the management company.

Conclusion

Due to the ever increasing number of companies signing up to the Living Wage, now is a good time to consider whether membership of the Living Wage would add or detract from your company. It is clearly less of an issue for companies providing higher-priced services such as accountants, who only need to increase the pay of a proportionally low number of staff than for companies in labour intensive sectors such as in the manufacturing, retail and care sectors who will find the effect more significant on their payroll.