The living wage: boosting employee well-being

Today marks the start of Living Wage week. Living Wage week has been going for a number of years and was established to celebrate the achievements of the Living Wage movement, to announce the new hourly UK and London Living Wage rates, and to raise awareness of the benefits of the Living Wage for employees and employers.

First, let’s be clear on the terminology as there is more than one living wage in play. The Living Wage (LW) is set independently every year, according to the cost of living, and is voluntarily adopted by employers wishing to pay more than the legal minimum.

The rates cover all workers aged over 18 year. There are two rates, one for the capital (the London Living, which is now worth £9.75 an hour) and one for the rest of the country (the UK Living wage now worth £8.45 an hour).

The LW is reviewed annually by independent academics. The calculation takes into account things like accommodation, travel, healthy food, holidays and little extras like birthday presents. It is estimated that around one in five working people earns less than the LW.

The LW should not be confused with the recently introduced National Living Wage (NLW), which was announced in last summer’s Budget. From April, organisations have been required by law to pay workers aged 25 and over at least £7.20 an hour. Between 2016 and 2020 it will rise to a level worth 60% of average earnings.

Employers that wish to publicise the fact that they pay the LW can apply for the Living Wage Employer Mark from The Living Wage Foundation. For the purposes of Living Wage accreditation, self-employed and sub-contract workers are covered by the LW. This means that if they work on the premises for more than two hours for eight consecutive weeks they must be paid the LW. This also applies to those who don’t have a fixed place of work but are part of the core workforce, such as couriers in a delivery company or home care workers.

To date, well over 2,500 employers have signed up to the LW employer mark, these range from such household names as Aviva, English National Ballet, GSK, Nestle, PWC and Unicef, to such employers as Dorset Wildlife Trust, Jascots Wine Merchants, Otley Town Council, Stroud Brewery and Wimbledon College.

Why have such a large number of such diverse employers signed up voluntary? For some, they have done so because they feel it is the right thing to do. They believe that it is only fair that employees should earn a wage that is enough to live on. This can be a relatively straight forward decision when employers can afford to sign up.

For others, the decisions can be more challenging. Why should they increase their pay costs and place themselves at a potential competitive disadvantage to other employers? However, there can be benefits for organisations that can help improve its financial position rather than making it worse.

For instance, by paying the LW, employers should find it easier to compete and retain employees compared with organisations that don’t. While there will be a cost increase in the short-run due to higher pay, in the medium-term employers should benefit from reduced recruitment, induction and training costs as well as with the disruption caused by there not being enough people to do the work required.

There is the potential for the LW to boost employee productivity. Research shows that poor financial well-being can result in higher levels of stress and anxiety, lower levels of good health, poorer job performance, reduced cognitive function and higher levels of absenteeism.

Ensuring employees receive a wage that’s enough to live on can be a crucial element in ensuring employee well-being in general and financial well-being in particular. However, there are other elements that are important as well, such as rewarding and recognising people fairly, offering benefits that help them save money and give them piece of mind, giving them interesting and responsible jobs, respecting their points of view, welcoming their ideas and offering flexibility.

Another important aspect of financial well-being is financial understanding. If people don’t understand how money works, then they are not likely to make good saving, spending or borrowing decisions. If employees don’t have financial capability, then they’re not going to value the staff benefits that are on offer to them. Nor are they going to understand the benefit decisions that they need to make and the possible consequences of these decisions, such as accessing their defined contribution pot at the age of 55. For this reason, the CIPD support the latest national week to come into existence, Financial Capability week, which kicks off on the 14th November.

Living wage week is an opportunity for those who already pay it to review their other people management practices to see how they support workplace financial well-being. It is also an opportunity for those who do not currently pay the LW to think creatively about how they could introduce it in their workplace, for instance, exploring what productivity improvements could be introduced that would help pay for the wage increase.

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  • Anonymous

    Totally agree that this is beneficial in so many ways, not least in that, when workers feel valued they take a pride in what they do resulting in benefits to employers.