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What is the ‘real living wage’?

New ‘real living wage’ rates have been announced this week, with quite a substantial increase for those living both inside and outside of London. Further to the announcement, businesses across the UK have come under fire for not paying the ‘real living wage’, instead allowing for ‘in-work poverty’ (see, for example, http://www.bbc.co.uk/news/uk-wales-south-east-wales-41865576).

Last year, a new category of minimum wage was introduced – the national living wage. This new amount, to be paid to everyone over the age of 25, is currently set at £7.50 per hour – which is 45p more than what 21-24-year olds are entitled to.

Confusingly, there is also something called the ‘voluntary living wage’, or ‘real living wage’. This is not something that employers have to pay, rather it is an aspirational figure calculated by the Resolution Foundation, a not-for-profit research and policy organisation, and overseen by the Living Wage Commission. This week, it was announced that the voluntary rate will rise by 30p an hour to £8.75 outside London. In London, the rate will rise by 45p to £10.20 an hour.

As many employers found out with the introduction of the national living wage last year, changing one group of employees’ wages is not necessarily straight forward when you take into account the knock-on effect of that change. For example: A company pays its’ factory workers the minimum wage of £7.05. The company pays some senior factory workers with managerial responsibilities £7.50 an hour, and the supervisors are paid £8.00 an hour. With the introduction of the living wage, everyone over 25 gets at least the senior factory worker pay – so in order to keep the distinction between ordinary and senior factory workers, the senior factory workers need a pay rise. If the senior factory workers’ pay increases to £8.00 – the supervisors’ pay will also need to increase, and so on.

Companies often experience pressure to pay the real living wage – but you do not have to. Certain companies (e.g. Ikea, Google, KPMG, GSK) have committed to paying the real living wage, and will proudly use that fact as a recruitment tool. If you as a company already pay in excess of the real living wage (whether you do so purposefully or not) you should use this to market your business – you can apply to become accredited with the Living Wage Foundation, which allows you to display their logo on your website etc. – according to the Living Wage Foundation, 80% of accredited employers have experienced an improvement in the quality of work from their employees following their commitment to pay the real living wage, and 86% have reported that it enhanced their general reputation.

If you do not currently pay the real living wage, but would like to do so – proceed with caution. As outlined above, making changes to one group of employees’ wages is likely to have a knock-on cost effect in respect of your more senior employees.

If you would like to learn more about the national minimum wage thresholds, the real living wage, or would like assistance undertaking a pay and grading review, please contact Claire Knowles (cknowles@acuitylegal.co.uk 02920 67 4404) or Rebecca Mahon (rmahon@acuitylegal.co.uk 02920 67 4416) in the employment department.

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