Definition
A living wage according to the European Foundation for the Improvement of Living and Working Conditions is the amount of income needed to provide an employee with a basic but socially acceptable standard of living. It is different from the minimum wage, which is an amount set by law to ensure workers have enough income to ensure they are living above the poverty level
Purpose of the living wage
The purpose of the living wage campaigns, which emerged in the 1990s, in Canada, Ireland, New Zealand, and the UK is to draw attention to the inadequacy of statutory minimum wage levels and help secure pay increases for low-paid workers.” Living wage initiatives calculate the income required for workers to achieve a basic standard of living, considering existing levels of welfare payments, subsidies, and taxes.
Calculations are made based on input from representative citizens via focus groups using the minimum income standard research method. The aim is to arrive at a social consensus on what goods and services every household should have access to and not be without, such as housing, food, healthcare, transport, and education.”
Introduction of the National Living Wage in Ireland
Tánaiste and Minister for Enterprise, Trade and Employment, Leo Varadkar, commented on the National Living Wage saying that "Improving terms and conditions for workers must be one of the legacies of the pandemic. Across the country, thousands of minimum wage workers, regardless of what job, sector, or location they work in, will benefit from this increase.” In addition, he added, “many more employees will feel the benefits of knock-on increases resulting from the changes”. He continued, "The introduction of a living wage is an important step we are taking towards eradicating low-wage employment for all workers.”
With the National Living Wage announcement, employers will be expected to adjust workers’ earnings in phases until they meet the set amount. The new living wage will be set according to the recommendations of the Low Pay Commission.
Based on recommendations of the Low Pay Commission, the national living wage is due to be set at 60% of the hourly median wage as agreed by the Government.
What it means for the National Minimum Wage
The National Minimum Wage is expected to be replaced by the National Living Wage by 2026, after a four-year introduction period. It will be in effect the lowest hourly rate that employers can pay their workers.
From 1 January 2023, the increased National Minimum Wage is as follows:
- Aged 20 and over: €11.30
- Aged 19: €10.17
- Aged 18: €9.04
- Aged under 18: €7.91
National Living Wage timeline
One of the first steps towards reaching a living wage was an increase to the national minimum wage on 1 January 2023 to €11.30 per hour. The increase in the minimum wage coincides with similar increases in the minimum wage in countries like Turkey, New Zealand, Spain in early 2023.
In Ireland, the increases to the National Minimum Wage will continue over a four-year period until it reaches 60% of hourly median earnings. In 2023, the estimation is that 60% of median earnings equate to approximately €13.10 per hour. Once the National Living Wage has come into effect, the Low Pay Commission will conduct a review and advise the government on the next steps to reach a targeted threshold of 66% of the hourly median wage.
The gradual introduction of living wages will have an impact on payroll costs. For instance, the initial increase of €10.50 to €11.30 increases the cost by €0.80, but also causes knock-on increases for many other workers.
What employers can do to prepare
The announcement of a National Living Wage comes at an additional cost to small and medium-sized businesses since the hourly rates for minimum wage workers will increase. However, the four-year time limit ensures employers have time to prepare, calculate, and manage any future additional costs.
For instance, it may mean adjusting your budget to cover the additional salary expenses, ideally without reducing employees or amending the work hours. A small or medium-sized business in retail and hospitality, reliant on a considerable number of minimum-wage employees, may face financial constraints adjusting to a living wage.
For businesses that operate in a sector which typically has a substantial number of employees earning the minimum wage, the LPC report recommends a support mechanism is introduced for employers.
Additionally, the LPC recommends that a provision exempting an employer who is experiencing financial hardship from the obligation to pay the minimum wage should be maintained in any new legislation related to a living wage. The exemption will allow employers to pay the minimum wage until they can afford to pay the living wage.
Regular reviews and support for employers
The Low Pay Commission recognises the challenge faced by hospitality and retail businesses and has recommended introducing a support mechanism for employers to avoid layoffs. Besides, the Low Pay Commission will regularly review the economic conditions and prevailing cost of living and adjust the implementation of the National Living Wage. For instance, if the economy does not support the payment of a living wage, the commission can slow down its implementation.
