‘Living wage’ sparks debate

A former senior advisor for David Cameron has spoken out saying all employers should be made to pay a ‘Living wage’, which has sparked debate before the budget. Pam Sidhu, Head of the Wilkes’ Employment Team talks about the implications for Employers.

The “Living Wage” is not law. It is an hourly rate that is set independently and is purely voluntary for employers. It is calculated based on the cost of living in the UK; currently it is set at £9.15 per hour in London and £7.85 per hour elsewhere. Contrast this to the standard adult hourly rate set in law, known as the “National Minimum Wage” at £6.50 – which all employers must pay to adult workers as a minimum. There appears to be some pressure within the Government to make companies pay more to employees, in order to deal with poverty and boost the economy. Unfortunately there is no firm plan by the Government to increase the National Minimum Wage to the Living Wage, or to give any legal footing to the Living Wage at all.

In any case, adopting the Living Wage is not likely to be viable for most smaller businesses, as these businesses are already saddled with red tape and other costs, to a disproportionately higher level than larger businesses. There would need to be some significant incentives offered by Government for smaller businesses to adopt the Living Wage rate for their staff, particularly for those of their staff currently on the National Minimum Wage.

There are clearly benefits in offering better pay that is more in line with current living costs in the UK. Staff will feel more motivated at work and will be more willing to go the extra mile for their employers. However, given the lack of any incentives for smaller businesses, the Living Wage is likely to be the preserve of larger businesses which can better afford it.

If you have any query or would like assistance in developing your human resources policy, please call Pam Sidhu or your usual contact in the Employment Team on 0121 233 4333 for further information.