Which living wage to pay?

National living wage

The national living wage (NLW) is payable to those age 25 and over. It’s currently set at £7.50 per hour and rises to £7.83 on 1 April 2018. All businesses need to pay it or risk a fine and being named and shamed.

Real living wage

There is also the so-called real living wage (RLW). This is supported by the Living Wage Foundation, a campaign group established in 2011. The hourly rate is independently calculated based on “what people need to get by” and is currently £10.20 in London and £8.75 everywhere else in the UK.

More than 3,600 businesses now voluntarily pay the RLW to their staff. Half of them are large companies but the other half is made up of SMEs. Research by Middlesex University and the University of Liverpool has suggested there is a “clear business case” for SMEs that pay the higher wage. Key findings from the report are that 72% saw a positive effect on their brand reputation; 60% saw a positive effect on manager/employee relations; 43% said employee morale and productivity improved. But it’s hard to calculate the impact on the bottom line. After all, this is a substantial additional labour cost.

Businesses that employ staff on the NLW tend to suffer with higher employee turnover figures. Recruiting staff to fill these positions can be expensive (£5,000 on average for each position), but what if becoming a RLW employer meant they stayed for longer?

Keeping staff

The report mentioned above includes a case study of a care company with 15 care staff and two office workers. It is operating in an industry where turnover is 50% to 70% on average - but in the twelve months paying the RLW there has not been a single departure. In other examples recruitment costs were down to £0 as staff were found by word of mouth.

Tip. Paying the RLW can enhance your reputation and drive down recruitment costs significantly. However, you need to keep close tabs on turnover rates to see if the move has made a difference and factor in any additional wage increases for other staff. Rather than jump straight up you could increase wages to somewhere in the middle.