Living Wage vs National Living Wage

Date: 4th February 2016

The Living Wage campaign was launched in 2001 by parents in East London, who were frustrated that working two minimum wage jobs left no time for family life. Now known as the Living Wage Foundation, they carry out an annual review of the basic cost of living in the UK and then set an hourly ‘Living Wage’ rate. Businesses can choose to voluntarily pay the Living Wage and the foundation receives cross party support, with public backing from the Prime Minister. The foundation argues that paying a Living Wage is good for business, families and society. The rate currently stands at £8.25 an hour, £9.40 an hour in London and has many Principal Partners such as Aviva, Nestle and Burberry.

The National Minimum Wage has historically been at least £1 less than the Living Wage rate, sometimes over £2 less than the London Living Wage rate. In an attempt to reduce the gap, the government are introducing massive changes in April 2016, namely an increase of 50p for those on minimum wage over 25 years old (£7.20 an hour). It will now be referred to as the National Living Wage and proposals are for the National Living Wage to reach £9 an hour by 2020. Press releases claim that the new National Living Wage will boost living standards for over a million workers and a new poll revealed that 93% of bosses agree the new wage is a good idea, with 88% believing it will lead to high productivity amongst staff (gov.uk).

The Living Wage Foundation are keen for the government rate to be kept separate from their Living Wage rate, stating on their website that the government rate is based on the median earnings while the Living Wage Foundation calculates their rate based on the cost of living (www.livingwage.org.uk).

So how does this affect you? Well, if your rates are currently under £7.20 then you will need to increase these to at least the National Living Wage by April 2016. Many companies choose to undertake a pay review when making changes such as these and in the process this can raise all sorts of issues, such as equal pay disputes or general disparity amongst employees’ pay. Best practice would be to have neat and structured pay tables, where there are clear scales for employees to move up, but this is easier said than done! The bigger picture here is whether you want to be one of the companies at the forefront of paying the Living Wage. The argument is strong but for smaller companies, especially those in the London area, the figures may not add up.

The team at RBHR have a wealth of experience when it comes to pay (excuse the pun), including introducing pay increases, creating and implementing pay tables and advising on the ethical obligations surrounding pay and benefits. If you think your company could benefit from one of these services then why not give us a call on 01935 411191 or email us on admin@rebeccabevins.co.uk.

 

This article was originally published in our February 2016 Newsletter.