UK REAL LIVING WAGE INCREASE

UK Real Living Wage Increases to £12.60 – What Employers Need to Know

This month, the Living Wage Foundation announced an uplift to the UK Real Living Wage, increasing it to £12.60 per hour for workers outside London and £13.85 for those in the capital. As all businesses know, understanding the requirements for both statutory National Minimum Wage (NMW) and voluntary Real Living Wage rates is essential. Below, we explore the practical and legal implications of these updates and what this means for employers in light of their statutory obligations and potential reputational benefits.

Summary of Current UK Minimum Wage Requirements
The UK Government mandates the National Minimum Wage (NMW) to ensure that workers are paid a baseline rate that reflects cost-of-living standards. The current NMW rates (effective from April 2023) vary depending on age and apprenticeship status:

• Aged 21 and over (somewhat confusingly called the “National Living Wage”): £11.44 per hour

• Aged 18-20: £8.60 per hour

• Aged under 18: £6.40 per hour

• Apprentices: £6.40 per hour

Apprentices are entitled to the apprentice rate if they’re either:

• aged under 19; or

• aged 19 or over and in the first year of their apprenticeship

Employers are legally required to pay workers at least these amounts; failure to do so can result in financial penalties, potential back-pay orders, and public “naming and shaming” by the Government.

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“Employers already facing wage-related challenges may find this is an opportune moment to reconsider pay strategies, aligning with both ethical standards and a competitive employment market.”

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Understanding the Real Living Wage
The Real Living Wage, set independently by the Living Wage Foundation, aims to reflect the actual costs of living. It is recalculated annually to account for inflation and changes in essential costs such as rent, food, and utilities. As of this latest increase, the rate stands at:

• £12.60 per hour for workers outside London

• £13.85 per hour for workers in London

This voluntary wage standard applies to any employer that wishes to be Living Wage-accredited, requiring the employer to pay all employees and contracted staff at or above this rate.

Key Differences Between the National Minimum Wage and the Real Living Wage
The most significant difference between the NMW and the Real Living Wage lies in the calculation method. The NMW is based on government policy and set to provide a baseline minimum to reduce exploitation, while the Real Living Wage reflects the costs of essential living expenses.
Additionally, while NMW applies to all employers in the UK, the Real Living Wage is entirely voluntary. Employers who choose to adopt it often do so not just to align with ethical or corporate social responsibility goals, but also to gain a competitive edge in recruitment and retention. Living Wage accreditation can be especially beneficial for businesses aiming to attract talent in the current labour market, which is highly competitive and prioritizes ethical employment standards.

Implications for Employers
While the Real Living Wage increase is not a legal requirement, it may still impact employers in various ways:

1. Staff Retention and Satisfaction: Numerous studies indicate that paying wages aligned with the Real Living Wage can reduce turnover, increase productivity, and enhance employee satisfaction. Businesses that proactively adopt this rate often report a more loyal and motivated workforce.

2. Employer Branding: For many organisations, becoming a Living Wage-accredited employer contributes to a strong employer brand, which can be critical in sectors like hospitality, retail, and care, where competition for employees is fierce. Adopting this wage standard may help businesses stand out as employers of choice, committed to fair pay.

3. Budgeting and Wage Structure Adjustments: For employers paying at or near the NMW, the difference to the Real Living Wage may be substantial. With the new Real Living Wage rate over £1.50 per hour higher than the NMW, businesses would need to evaluate the feasibility of adopting the Real Living Wage and adjust their wage structures accordingly.

4. Contracts and Outsourcing: Employers considering Real Living Wage accreditation must extend this commitment to outsourced and third-party staff. This could mean renegotiating contracts with suppliers or service providers, particularly for roles like cleaning, security, and maintenance.

5. Potential Cost vs. Benefit Analysis: The decision to implement the Real Living Wage often hinges on a cost-benefit analysis. Businesses need to weigh the increased wage costs against benefits like reduced absenteeism, lower recruitment costs, and the potential for enhanced brand reputation.

Practical Considerations for Moving to the Real Living Wage
Employers interested in moving to the Real Living Wage will benefit from a strategic approach. Here are some practical steps:

• Review Current Pay Practices: Identify all roles currently paying below the Real Living Wage and calculate the financial impact of aligning with the updated rates.

• Assess Workforce Structure: Identify if this wage increase will impact full-time staff only or whether part-time, temporary, or contracted staff will also need adjustments.

• Consider Phased Implementation: Businesses unsure about committing to an immediate change can consider a phased approach, gradually increasing wages over time to meet Real Living Wage standards.

• Communicate Clearly with Staff: If adopting the Real Living Wage, employers should communicate their commitment to fair pay practices to their workforce, emphasizing the business’s dedication to supporting employees’ financial wellbeing.

Future Outlook
The Real Living Wage has been gaining traction, with an increasing number of employers seeing the value in adopting wage practices that reflect true living costs. Though voluntary, businesses embracing the Real Living Wage often find themselves better positioned to attract and retain talent. Employers already facing wage-related challenges may find this is an opportune moment to reconsider pay strategies, aligning with both ethical standards and a competitive employment market.
Further, the new Government have committed to “narrowing the gap between rates” and making sure the rates are set with cost of living in mind. Ultimately, it is possible that the NMW rates catch up with the Real Living Wage whilst the cost of living crisis continues.

It is always key to ensure the correct rates are paid, and take the correct elements into account. If you have staff on these rates and want to discuss ensuring compliance or consider the impact on existing pay scales, let us know.