Living wage: change is coming
What’s the difference between the minimum wage, the national living wage and the living wage as defined by the Living Wage Foundation?
The average person in the street would probably struggle to explain the three concepts, or indeed what exact levels they are actually set at.
Let’s start with the highest rate first. This is the Living Wage Foundation’s rate, which is £8.25 per hour for an employee not undertaking training.
It should be emphasised that these rates are not compulsory. The Living Wage Foundation (LWF) invites companies to become “accredited volunteers” which then obliges them to pay those rates.
The foundation says that its aspirational rate is based on research on how much the cost of living
really is.
The water has been somewhat muddied by the Government’s rebranding of the current minimum wage as the national living wage for workers above the age of 25, from April 1, 2016.
The crux of the issue is the difference between the eventual bottom rate for an adult of the Government’s compulsory £7.20 and LWF’s voluntary £8.25.
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According to LWF, the Government rate set by Chancellor George Osborne is a figure not based on any cost of living research, but what he thinks companies should be able to afford to pay.
Manchester-based social housing regeneration contractor Procure Plus has adopted the higher rate and contractors working with Procure Plus are also encouraged to pay the rates.
Procure Plus senior regeneration manager Ann-Marie English is also the LWF’s North West Champion.
She said: “We’re trying to get disadvantaged people back into employment. A lot of people we wanted to apply for jobs within our organisations couldn’t at such a low wage. It was a massive offput for someone living third generation on benefits.
“We consulted with our supply chain and told them there was a barrier to overcome and we wanted to do something about it. Nearly all agreed it was the right thing to do.
“In many cases, these workers are the only people earning in the family. To help our supply chain make the decision to pay the living wage we did the same.”
English said she met with some opposition from companies but found an interesting way of bringing them round to the Procure Plus way of thinking.
She explained: “I said to them: ‘Pay your workers what you’re paying them now, but run a dummy living wage bill alongside the real one’.
“When they did this, they realised the difference between the two amounts was negligible. They also realised they are more likely to get people who will be motivated to do a good job.”
Tom Skinner is the co-ordinator of the LWF’s Greater Manchester campaign. He spends his time visiting businesses individually or in groups, for example at events hosted by Greater Manchester Chamber of Commerce.
“Mostly, companies are very positive,” he said. “Generally, it’s something people
want to do.
“I’ve spent a lot of time in areas of Manchester talking to shop owners. It’s a difficult sector.
“Everyone I spoke to was positive about it apart from one or two. The challenge is that although people would like to pay the living wage, they can’t do it straight away.”
Skinner said he has had to spend a lot of time clarifying what the living wage is because the Chancellor confused matters by calling the new minimum wage rate the “national living wage”.
“What the Chancellor announced in the national living wage, is not really a living wage because it’s not based on the cost of living,” he said. “This is not a criticism, it is a fact.”
Another company happy to pay the living wage as defined by LWF is Manchester-based cloud computing firm ANS.
Chief operating officer Paul Shannon said the company paid it because it was an acknowledgement that people need an amount of money on which to live.
“We started investigating the issue a while before the last announcement by the Chancellor,” he said.
“We discovered that to recruit the right kind of people there is an amount of money that needs to be paid, so we took the bold step of increasing our cost base, even though they might be relatively junior in their roles.
“It’s backed up by our apprentice academy in that they are almost all technical or aspiring technical staff. We said it was unfair to put them through an aggressive training programme when we’ve got a level of expectation for them where they will work with very big clients and then pay them the minimum wage.”
There was, however, a word of caution. Paul Norris is the owner of Formston Evans, a Bolton-based timber furniture frame specialist, who has also acquired joinery and building firm J Phillips & Sons in nearby Westhoughton, recently.
“The living wage is a fantastic idea in principle,” he said. “But a lot of small businesses are struggling to break even, so any additional costs are going to have a massive impact on their ability to operate and, more importantly, invest.
“If you’re looking two to three years down the road, you’re going to have to completely rethink your plans.
“The other problem is, some of the businesses might try to pass the extra cost on to their customers. But the customers could be in exactly the same boat.
“If you’re in an industry that traditionally makes good profits, they tend to employ people on very decent salaries anyway. However, in manufacturing salaries tend to be a bit lower.”
Norris said the living wage on top of the current phasing in of auto-enrolment for pensions could be a big burden for companies.
For more news and views on the Living Wage debate and how it could impact your business download our free 16-page PDF supplement.
Click here to download the supplement
The Facts
-From April 1 hourly pay should be £7.20, an increase of 50p on the current “minimum wage” rate of £6.70 per hour.
-From October 1, minimum wage for people aged 21-24 will be £6.95.
-For 18 to 20-year-olds it will be £5.55.
-£4.00 for16 to 17-year-olds who are above school leaving age but under 18, from October 1.
-For apprentices aged 16 to 18 (or 19 if in the first year) the rate will be £3.40.
