Paying the real Living Wage is the right thing to do, but the business benefits are clear too

By Charles Cotton, Senior Policy Adviser for Reward at the CIPD. 

In the UK, it’s Living Wage Week (15-19 November), The Living Wage Foundation has announced the new rates for its voluntary ‘real Living Wage’ and is celebrating 20 years of the Living Wage movement.

The Foundation is an independent body that encourages employers to pay a wage that’s been calculated independently to give workers enough to get by on. From 15 November 2021, the national real Living Wage for London increases from £10.85 to £11.05, while the real Living wage for the UK rises from £9.50 to £9.90. Accredited organisations are encouraged to introduce the rise as quickly as they can and must do so by no later than 15 May 2022.

The real Living Wage is helping hundreds of thousands of people to lead a more dignified life

Almost 9,000 employers are now accredited as Living Wage employers, and CIPD research indicates that many more voluntarily pay at or above the real Living Wage rates. Accredited employers include half of the 100 largest publicly listed firms in the UK and well-known brands including Capita, Chelsea FC, Google, Persimmon Homes, Oxfam, Visa, and the CIPD. Many small and medium-sized employers have also signed up.

As a result of the Living Wage movement, 300,000 people across the UK have seen their wages uplifted to help them meet their essential food, energy, and transport costs.

This year’s increase comes against a backdrop of the great cost of living crisis, with such basics as energy and fuel prices jumping in price. It’s never been clearer that paying a liveable and fair wage is the right thing to do. It’s an essential element of what makes work worthwhile and proves that that the organisation is committed to being a responsible business.

The CIPD’s summer 2021 Labour Market Outlook (LMO) found that many employers questioned have already signed up (26%) or are in the process of signing up (11%), to the real Living Wage for these reasons. A further 37% already pay at or above the real Living Wage rates but are not seeking accreditation. Among those accredited, or seeking accreditation, the most popular reason cited was that it’s the right or fair thing to do. But respondents also reported several business benefits.

The business case for the real Living Wage is clear too

The LMO found that among those who are already a real Living Wage employer, or have plans to become one, the main drivers are: improving employee financial wellbeing; increasing employee engagement; and reducing in-work poverty.

Other factors cited include to: help reduce employee turnover rates/costs; improve employee productivity; and improve pay gaps. Not surprisingly, given the backdrop of the pandemic, those looking to accredit were more likely to mention external pressure (such as from investors and customers) and media scrutiny.

A CIPD report released last week shows that when employees suffer from financial distress then both their wellbeing and job performance are likely to suffer, with implications for the workplace. So, this should be an issue of concern for both organisations and their stakeholders, such as investors or employees.

Our LMO findings are also backed up by research by Cardiff Business School. It finds that the benefits to employers of paying the real Living Wage include enhanced reputation, improved recruitment and retention, better employee relations, and reduced sickness absence.

Even among those employers who aren’t signed up to the real Living Wage, almost half see the benefits of matching the rates or even bettering them. As well as being the fair or right thing to do, our research finds that other common explanations for why they do this include to: improve employee engagement; help cut employee turnover rates/costs; to boost employee financial wellbeing; and to respond to recruitment pressures.

However, just paying the real Living Wage isn’t enough

While paying a wage that’s high enough to maintain a normal standard of living can help prevent people from falling into difficulties in the first place, this is just one part of employee financial wellbeing. Other elements that help prevent people getting into distress include, financial awareness, benefits that stretch the value of the pay packet, and benefits that help if someone becomes sick or injured.

Unfortunately, all employees can be at risk of financial distress, due to such life events as divorce, bereavement, or illness. Again, employers should consider what benefits they can offer to help those with problems, such as debt counselling, hardship loans or early access to earned salary.

However, no matter how supportive the rewards, if people in financial distress feel ashamed to talk about their money worries in the workplace, then they’re going to keep their fears to themselves.

That’s why we’re suggesting that employers help to break the stigma, by facilitating proactive conversations about financial wellbeing and encouraging people to seek help as quickly as possible before the problem grows. One way they can do this is pointing them to trusted external resources, such as those provided by the Money and Pensions Service, which has a variety of resources including dealing with money worries.

As well as being enough, pay should also be fair. To boost employee financial wellbeing, employers should be as open and transparent as they can with their staff about how they manage pay, such as how jobs are valued, how pay structures work, and how pay increases are determined. A similar argument also applies to benefits.

Bringing all these elements together will allow employers to adopt a more strategic approach to employee financial wellbeing. Not only will this help the business, but it will also help people feel more confident and empowered when it comes to money matters.

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