Living Wage versus National Living Wage: what's the difference?

What is the Living Wage?

The Living Wage is an hourly rate updated annually by the Living Wage Foundation. The rate is based on the basic cost of living in the UK and calculated by the Centre for Research in Social Policy using information agreed by focus groups. These groups decide what is necessary for a minimum standard of living. The rate is then calculated based on the associated costs.

To keep things simple, there are just two rates - a London Living Wage which is currently £9.20, and one for the rest of the UK which is £8.25.

Importantly, the rates apply to everyone over the age of 18. This is quite different to the minimum wage that varies with age. The often quoted £6.70 hourly rate applies only to those over 21 with a much lower rate for those between the ages of 18 and 20, of £5.30.

Aren’t the government going to be mandating the National Living Wage anyway?

The government have decided to implement a new National Living Wage of £7.20 with effect from April 2016. They aim to increase this each year, with the intention of reaching 60% of the median wage across the country by 2020. Current estimates suggest that this could be around £9, although it is likely to depend on what is affordable.

This National Living Wage is not the same as the Living Wage, which is confusing. It will differ in three key respects:

It is mandatory – the Living Wage is a voluntary rate
It will only apply to anyone of age 25 and over, and so is really just another tier of the mandatory, age-dependent Minimum Wage.
Its basis is different to the Living Wage. It is relative to the median wage rate rather than what is necessary to maintain a minimum standard of living in the UK.

Isn’t the Living Wage just another cost? Why would any company choose to pay their staff more than they need to?

The introduction of the Living Wage impacts the direct employment costs of a business, so why do it? Apart from, ‘doing the right thing’, there are several reasons why companies become accredited, but the main reason is that over the longer term, it can prove to be beneficial financially as well as ethically. The reasoning goes as follows:

Paying a fair wage enhances employee engagement by making staff feel valued for the job they do.
In turn, engaged employees tend to be absent less often and are more likely to remain loyal to the company.
Lower absence levels mean reduced costs of providing temporary cover and associated management time.
Loyal staff tend to stay which means less staff turnover, lowering the direct and indirect costs associated with recruitment.
Taking these additional costs into account, means that paying the Living Wage can be the more cost effective approach over the longer term.

Living Wage accreditation also helps demonstrate to the outside world that employees are treated fairly and can act as a magnet during the recruitment process. The strength of argument for adopting the Living wage is demonstrated in the fact that the Living Wage movement now has support from over 2,000 accredited companies across the UK.

What do I do to become accredited?

The most difficult part of the journey to accreditation is almost inevitably, the internal discussions around the benefits of paying the Living Wage. Once all your employees are paid the Living Wage, the process of becoming an accredited employer is relatively straightforward. The first step is to register your interest, this triggers offers of support from the Living Wage Foundation that continue throughout the whole process.

It is important to remember that the Living Wage doesn't just apply to these directly employed staff but to all contractors and sub-contracted staff. So if your direct employees are getting the Living Wage but your contractors and subcontracted staff are not, it’s not a barrier to accreditation but the Living Wage Foundation asks that you take appropriate steps to remedy the situation before applying, setting some achievable milestones. Our experience of dealing with our subcontractors was surprisingly positive with little challenge to our request.

It was an easy decision for us to apply for Living Wage accreditation as the ethical reasons for doing so chime well with our culture and values as a firm. An approach to pay which is built on strong ethics, is fair, consistent and in line with market norms then allows the overall reward package to be a true motivator and not a bone of contention. This in turn allows our employees to build relationships with others, be engaged with their work and take our business forward for our clients.

We are truly delighted to be one of more than 2,000 Living Wage accredited companies. The only decision that remains – in which office do we display our plaque?

For further information visit the Living Wage Foundation website at Livingwage.org.uk

Clare Gardner is partner and head of CSR at Hymans Robertson.

This article is supplied by Hymans Robertson.