29 September 2022
What is the Living Wage?
The Living Wage is an hourly pay rate defined by the Living Wage Foundation, which employers can volunteer to pay if they wish. This should not be confused with the National Living Wage which is set by the Government each year and is a legal requirement for those aged 23 and over.
The Living wage is applicable to anyone over the age of 18, except for those who are employed under a government approved apprenticeship scheme.
Whilst paying the Living Wage rates of pay is voluntary, once an employer has signed up to the scheme it is bound by a legal agreement and the rules of the Living Wage Foundation. An anonymous whistle blower helpline for workers and compliance checks help to ensure that rules are followed.
How much is the Living Wage?
The rates announced by the Foundation in September 2022, in response to the cost of living crisis are:
- London: £11.95, an increase of 90 pence per hour
- Rest of UK: £10.90, an increase of £1.00 per hour
The increase in the UK rate of 10.1 per cent is significantly higher than the median 3.5 per cent increase reported by XpertHR in September 2022.
By comparison, the current National Living Wage set by the government is £9.50 for those aged 23 and over and is next reviewed in April 2023.
Should I pay the Living Wage?
The Living Wage Foundation suggests the following accreditation benefits:
- 86 per cent say it has improved the reputation of the business;
- 75 per cent say it has increased motivation and retention rates for employees;
- 64 per cent say it has helped differentiate themselves from others in their industry;
- 58 per cent say it improved relations between managers and their staff; and
workers stress the benefits of having a greater work life balance.
In addition, Living Wage employers are visible on the Living Wage Foundation website, receive a plaque to display and may use the Living Wage Employer Mark on their website and paperwork.
Considerations for Employers
Being a Living Wage employer is a great way to retain and attract talent, and potential business. There are, however, some considerations, in addition to the increase in their pay bill, for employers when reviewing their overall pay strategy:
- Increase in employer (ER) National Insurance contributions.
- Increased pay based benefits such as pension contributions, holiday pay and certain commission schemes.
- Increase in overtime payments, particularly where a premium is applied – may it become more financially viable to employ an additional worker than to pay regular enhanced overtime?
- Will increased pay mean fewer workers, and is that viable whilst maintaining ‘good work’?
- The potential narrowing of pay gaps, for example, the pay differential between a worker and their line manager is reduced and may require review.
- As an accredited employer has agreed to ensure that certain third party workers such as cleaners and security staff are also paid in line with the Living Wage, employers should also expect an increase in contractor fees.
RSM’s legal and HR teams can help you to understand how the Living Wage and National Living Wage might impact or assist your business growth, and you can find more information at Living Wage Foundation. If you have any queries, please contact Laura Cerasale.