The Living Wage – What’s it all about?

The debate and coverage that the Living Wage (LW) is receiving continues to grow so I wanted to write a short blog on it. I recently attended a seminar titled “Making Work Pay” at Tynecastle stadium where Hearts of Midlothian FC – a living wage employer, are based. The seminar was put on by Edinburgh City Council in conjunction with The Edinburgh Partnership.

What is it?

The LW is an hourly rate calculated independently each November by the University of Loughborough’s Centre for Research in Social Policy and updated annually. It varies from the National Minimum Wage (NMW) in a number of ways, most notably in that it is currently £1.35 per hour higher (£7.85 as opposed to £6.50 per hour). Additionally, whilst the NMW is set by the Government and compulsory for businesses to pay, employers can decide themselves to pay the LW.

The Living Wage Foundation advocate for the payment of the LW as a minimum, offering that the NMW is not sufficient to keep the lowest paid workers in society above the poverty line.

To further boost their reputation and profile, businesses can elect to undergo LW Accreditation. This allows businesses to make a statement that not only do they ensure all of their “direct” employees are paid at least the LW – but that they have plans in place for any subcontracted staff to receive it as well.

Why pay it?

The Foundation make a number of cases for why employers should choose to pay the LW:

The Social Case – This refers to the difficulties many people face when they are in work but still rely on food banks and unsustainable high interest loans due to low pay or not enough hours available. The Foundation make a moral plea to employers to pay the Living Wage to help lift the lowest paid out of this rut and allow people to live a better life.

The Public Policy Case – The argument for the LW here relates to the increased tax revenues and reduced tax credit expenditure that the UK Treasury would benefit from if more people were in higher paid employment. Additionally, the Foundation offer that the LW will help upskill the UK’s workforce and increase overall productivity again benefitting the economy.

The Business Case – Perhaps the most important aspect when it comes to convincing employers to pay their staff more than they legally have to. The Foundation state that research has shown that paying employees the LW can result in:
• Increased employee productivity;
• Reduced absenteeism;
• Increased staff retention – saving on recruitment/on-boarding costs; and
• Improved morale and commitment.

So why Isn’t everyone paying it?

The seminar I attended was full of praise for the LW and the businesses and organisations that pay it – as well they should be, it is an honourable thing and I would encourage any business who can pay it to do so.

What I felt was somewhat lacking from the discussions however was any notion of why businesses might not be able to meet the LW. Whilst the business cases mentioned above are all possible through increased salary, they are not guaranteed and businesses will be cautious about outlaying first to recoup second.

What is guaranteed if shifting up from the NMW to the LW is higher costs through payroll – which for most businesses is already their highest cost. At the seminar, I felt this was somewhat brushed off as an issue, businesses were encouraged to add “value” to their services and they will see the higher costs nullified. I work with businesses who I know would have to scale back the number of hours available to staff and the number of staff they employ if they had to pay them the LW, so I don’t see how this benefits everyone.

Perhaps it could be argued that this is short-sighted and the wrong mind-set but I certainly feel it is realistic. I would reiterate that I like the idea of the LW and firms who can afford to should absolutely consider it. I see it from both sides however and for many SMEs it is something they would hope to aspire to more than simply making a choice of whether they want to.

What does the future hold?

The momentum behind the LW seems to be growing each week and as we enter the last couple of months before the General Election it will be an important topic. Just this week, as record contracts valued in the billions are agreed between the Premier League and Sky/BT Sport in England, the LW debate arose quickly. Surely these are the types of businesses who should be making a statement and paying the LW.

An important takeaway point from the seminar I attended was that public sector organisations such as Edinburgh City Council who pay the LW, are looking into making it mandatory for anyone who works with them to prove that they pay the LW in their organisation when tendering for work. It may be this sort of requirement where we begin to see more wide-spread uptake of the LW, particularly in the SME community.

The future may well see the LW become a requirement but at present, whether companies should be forced to pay it is another discussion for another blog. What businesses should ensure is that they at least pay their staff the NMW, details of which can be found on the Direct Gov website.