No easy answers to the problem of low pay

By Charles Cotton, Performance and Reward Adviser, CIPD

Today, the wage rates for the Living Wage increased by 25p to £8.80 per hour for London and by 20p to £7.65 per hour outside London. When the new rates were declared, it was also announced that the number of employers that had signed up to the Living wage now totalled 432, up from 78 this time last year, an impressive sixth fold growth in just 12 months. Such well known brands have signed up include Legal and General, Barclays, Pearson and the National Portrait Gallery. 

Research from KPMG shows that since this time last year, over 400,000 more people now earn less than the Living Wage. The total of those below the Living Wage is now 5.24 million. By region, Northern Ireland (26%) and Wales (25%) have the highest proportion of individuals earning less than the Living Wage. By occupation, 85% of bar staff, waiters and waitresses receive less than that rate. 

These data make for grim reading. What should be done? The Labour party has proposed  that firms that pay their staff the living wage would be given a tax rebate of up to £1,000, or an average of £445, for each individual for the next 12 months  by the next labour Government. 

To date, I’ve never met anyone in HR who would like to pay staff less (apart from some of those in executive compensation, but that’s another issue). There can be business benefits from paying the Living Wage. The CIPD’s Labour Market Outlook questioned those employers who had introduced the living wage. Just 16% said there are ‘no benefits’ resulting from introducing the living wage.   Around a quarter of these employers say that employee satisfaction, employee engagement and loyalty/motivation have all improved as a result of its introduction at their organisation, while 17% report higher productivity, 16% lower employee turnover and 14% an improvement in the standard of work. In addition, from the perspectives of the low paid employees and their families, getting the living wage improves their quality of lives, such as being able to afford to go away on holiday. 

However, among those who had not introduced the Living Wage, the CIPD’s survey found greater uncertainty as to the benefits, with 55% unsure as to whether there would be any. To force employers to pay the living wage would be counterproductive, but no serious commentator is proposing that. However, the CIPD would encourage all HR professionals to look at whether there may be a business case for increasing the pay for their lowest earners. Even if they cannot justify it, they should look at other ways of boosting the earnings of their low paid staff, such as through the benefits package, financial education and awareness and low-cost hardship loans. 

The Labour party’s proposal could help make the case in some workplaces to pay the living wage. It has announced that firms which sign up to paying the Living Wage at the start of the next Parliament would benefit from a 12-month tax rebate of up to £1,000 – and an average of £445 – for every low paid worker who gets a pay rise. 

However, to see earnings increase sustainably we need the UK economy to grow. This will require more investment in the skills of low earners and improvements in UK productivity. We also need reform of the tax and benefits system so that less money is taken away from the pay packets of low earners. However, in the meantime HR should look at ways of helping to boost the living standards of the low paid, such as providing staff benefits that provide access to discounted goods and services.

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  • Anonymous

    Which Labour Market Outlook report is this referring to?  I followed the link which takes you to the Autumn 2013 report, but can't find any reference to the living wage?

  • Hi Gaia, the link has now been repaired and will now take you to the correct Labour Market Outlook - Living Wage stats start on page 26.