Living wage

Does your business pay wages that support an acceptable living standard to all employees?

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Work is seen as a route out of poverty, a way for an individual to support themselves and their family, but there are instances where this is not the case. Globally, labour’s share of GDP has been falling, and in-work poverty is of growing concern to many. Across the world, workers are earning wages below the level required to attain an acceptable standard of living for themselves and their families. This is true in both developing and industrialised economies. This is despite many countries having legal minimum wages, as these are often very low. It is estimated that 5.6 million people in the UK (22% of employees) are being paid less than the living wage and 250,000 are paid below the minimum wage (see glossary for definition of terms).

In recent years, a movement has been growing to urge employers to pay over and above minimum wages - the ‘living wage’ - to all their employees, regardless of employment type, and across their supply chains. These living wages differ across country and region, but there are several organisations, such as the Living Wage Foundation, the Asia Floor Wage Alliance, and various unions, that calculate what they consider to be the living wage in various countries. These differ to statutory minimum wages as they take into account the cost of living, whereas minimum wages are often based on what the market is estimated to be able to bear, or to attract foreign investors.

There are of course costs to businesses increasing wages to the lowest paid, and some have argued that higher minimum wages, or living wages, would have a negative effect on employment. However, research into these effects has often been shown to be either small or negligible across an economy. The cost of increasing the wage bill will differ between companies and industries, but is not insurmountable. Labour behind the Label estimates that 0.6% of the cost of a garment is spent on the wages of workers and IPPR estimates that in the UK, introducing the UK voluntary Living Wage would alter the wage bill by less than 1% for large firms.

The costs to businesses, however, are not straightforward. The experiences of organisations that have introduced living wages shows that there are several benefits and potential cost savings. These include:

  • Reduced turnover
  • Increased employee loyalty and motivation
  • Higher productivity
  • Higher staff morale
  • Improved employer/employee relationships
  • Lower instances of absenteeism (estimated to cost UK businesses £29 billion/year)
  • Better customer service
  • Attracting and retaining talent.

In some instances, these benefits amount to cost savings that cancel out the increases to the wage bill.

The knock-on effects of introducing higher wages benefit the economy and society. Often those in low paid work are vulnerable or marginalised groups, such as women, young people, and ethnic minorities, so increasing their wages contributes to reducing economic inequality. A link has also been found between the living wage and improved psychological well being. One way businesses can absorb the cost of higher low wages is through wage compression, which also assists in curbing intra-company inequality. Higher wages also boost the economy by increasing the spending power of low-income groups. This also leads to higher tax income for governments and reduced reliance on state support.

A living wage means more than just the hourly rate of pay - it includes not losing out on income for taking time off for ill health, caring duties or similar. While employment laws differ from country to country, minimum wage laws at times fail to cover all workers. Yet businesses are able to go beyond minimum legal requirements. For instance, UK employment law allows for businesses to avoid extending rights such as holiday pay, sick pay and paid paternity leave to certain groups of workers, such as those who do not meet qualifying number of hours worked or who are classified as self-employed, contract workers, or interns. Currently, there is a significant pay penalty for those on zero-hours contracts, agency workers, casual and seasonal workers and self-employed individuals, and many of these workers do not qualify for statutory sick pay, full maternity pay or paternity pay, and automatic enrolment in pension schemes.

Employee

According to the international classification of status in employment (ICSE-93), 'employees' are workers who hold “paid employment jobs”, i.e. jobs in which the basic remuneration is not directly dependent on the revenue of the employer. Employees include regular employees, workers in short-term employment, casual workers, outworkers, seasonal workers and other categories of workers holding paid employment jobs (ILO, 1993).

Living Wage

A ‘living wage’ is the minimum amount an individual can earn in order to reach an acceptable standard of living. This level differs from region to region and is calculated using various assumptions, e.g. the number of people in a family, number of hours worked per week, take up of state aid.

Minimum Wage

The statutory ‘minimum wage’ is the lowest amount an employee may be paid by law. As of 1 January 2017, over 160 countries have statutory minimum wage laws, however they vary on a range of factors, such as which employees are covered, age of employee, sector etc. Some countries, such as Sweden and Austria, have no minimum wage laws, but minimums are agreed by the sector through collective bargaining.

National Living Wage

The ‘National Living Wage’ is an obligatory minimum wage payable to workers in the United Kingdom aged over 25 which came into effect on 1 April 2016 (those under 25 are paid the National Minimum Wage). It is calculated based on median UK earnings, aiming to reach 60% of median earnings by 2020. This is not the same as the voluntary Living Wage, calculated by the Resolution Foundation and overseen by the Living Wage Commission.

National Minimum Wage

The ‘National Minimum Wage’ is the minimum legal rate of pay for UK workers, paid to those over the school leaving age (16 at the end of the school year). There are separate rates for those aged under 18, 18-20, 21-24. Those aged 25 and over receive the National Living Wage. Apprentices are exempt from the National Minimum Wage and have a different pay structure. The rates change every April.

Contractors

the Living Wage foundation classifies a contractor as a worker who works at least 2 hours a week on a regular basis, in a premise where their job takes place, e.g. office building, taxi, who is not directly employed by the business itself.

The Gig Economy

a labour market characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs.

Answering YES

All Businesses MUST

Confirm they pay all employees (including contractors etc) a level of pay that enables a acceptable standard of living

Confirm that all employees have employment rights and protections, such as sick pay and pension contributions, etc

Explain their policies regarding pay when dealing with other businesses, such as suppliers, contractors etc

All Businesses MAY

Describe any philosophies or values regarding this issue

Describe their policies and practices on pay throughout the organisation

State the number of employees in each pay bracket

State the number of employees on different contracts, such as full time, part time, self-employed, flexible hours, etc

State the number of agency workers used by the business

Explain any future plans on organisational culture

Explain any further relevant information

Answering NO

All Businesses MUST

Explain why they do not or cannot answer YES to this question and list any mitigating circumstances or any other reasons which apply

All Businesses MAY

Indicate any relevant practices and policies, even if they do not fully meet all the requirements for answering YES

Mention any future intentions regarding this issue

Explain any further relevant information

Answering NOT APPLICABLE

All Businesses MUST

Confirm that they do not have any employees or contractors, and explain why not

All Businesses MAY

Disclose according to the guidelines for answering YES, or as close as possible, or otherwise demonstrate equivalent

Mention any future intentions regarding this issue

Explain any further relevant information

DON'T KNOW is not a permissible answer to this question

Version 2

To receive a score of 'Excellent'

Paying a living wage to all employees is fundamental to the business and rigorous policies and practices are in place

Examples of policies and practices which may support an EXCELLENT statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

  1. Pays all staff living wage or above
  2. Is committed to pay above the living wage in the future, in line with increases and has clear plan in place
  3. Has effective policies and practices in place to ensure staff are paid living wage or above
  4. Performance regularly meets stated values and goals
  5. Is Living Wage Accredited, or publicly committed to similar living wage benchmark
  6. Does not use different contract types to avoid employment costs and pays all staff equally for equal work
  7. Works on assumption all employees are full employees unless it can be demonstrated otherwise
  8. Regularly publishes number of employees on zero-hours and short-hours contracts, or equivalent, and those on agency work, including in supply chains
  9. Explains why alternative contract types are used
  10. Commitment to paying living wage or above covers whole supply chain
  11. Regularly audits pay practices
  12. Makes information on pay levels publicly available
  13. Communicates policies on living wage internally and externally
  14. Actively supports efforts to increase minimum wages and/or encourage uptake of living wage among other employers, either through campaigning, lobbying, or partnerships with other organisations, such as unions and labour-rights groups
  15. Uses influence as buyer/investor to encourage other organisations to pay the living wage or higher
  16. Pays interns and apprentices living wage
  17. Has statement of values or philosophy regarding living wage
  18. Engages employees, unions and other stakeholders in wage setting practices
  19. Encourages union involvement from staff
  20. Fringe benefits, are extended to all employees, including those on low pay
To receive a score of 'Good'

Business demonstrates a clear commitment to paying a living wage and has clear policies in place

Examples of policies and practices which may support a GOOD statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

  1. Is living wage accredited, or similar
  2. Committed to pay above minimum wage going forward
  3. Policies and practices in place on paying living wage
  4. Regular audits of policies and practices
  5. Partially transparent on pay policies and practices, pay levels across organisation, and results of pay audits
  6. Where not all employees are paid living wage, there is a clear roadmap, with measurable milestones, to reaching full coverage of living wage
  7. Living wage and full employment benefits are extended to all employees, including contractors, agency employees and those on flexible contracts
  8. Support efforts to increase minimum wage/extend coverage of living wage
  9. Engages with stakeholders and partners in wage setting
  10. Supports union involvement from staff
  11. Policies and practices on paying living wage are extended across supply chain, but enforcement is inconsistent/ measurement inadequate
  12. Where flexible employees used, pay penalties are avoided through effective policies, eg reimbursing travel costs for shifts cancelled last minute
To receive a score of 'Okay'

Business supports paying a living wage on an ad hoc basis OR this is not material or relevant to the business

Examples of policies and practices which may support an OKAY statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

  1. All employees are paid above minimum wage, and most are paid living wage or above
  2. Some transparency regarding levels of pay within business and supply chain
  3. Reporting on levels of pay is ad hoc, inconsistent or fails to cover all employees/full supply chain
  4. Has policies in place regarding living wage, but these fail to adequately address the issue or are inconsistently implemented
  5. Uses different types of employment contracts, and levels of pay/benefits differ between groups of people performing same role, eg agency employees do not receive same wage as full employees
  6. Some effort made to engage staff in wage setting
  7. Engagement on the issues is passive or ad hoc, eg campaigning for increasing minimum wage, engaging with stakeholders on wage setting
  8. Results of collective bargaining are limited to small groups, eg certain factories/employment contracts
  9. Statement of future intent to improve
  10. Statement of ‘no employees,’ appropriate to business
To receive a score of 'Poor'

The business acknowledges performance is below expectations or no reasonable explanation for failure to pay a living wage is offered

Examples of policies and practices which may support a POOR statement (not all must be observed, enough should be evidenced to give comfort that the statement is the best of the four for the business being scored):

  1. Little or no action apparent
  2. Where efforts made to increase pay levels, they are done at the expense of other employment benefits, eg subsidised meals, paid breaks etc.
  3. Policies are in place but they are ineffective or counterproductive
  4. Levels of pay are consistently below regional living wage rates
  5. Pay is structured so that minimum wages are not guaranteed, e.g. piece rates, commission only
  6. Business uses different contract types to avoid employment costs, such as zero-hours contracts, misclassifying employees as self-employed, agency staff
  7. Pay levels are not monitored along supply chain
  8. Businesses engages in practices that encourage other businesses, eg suppliers, to pay below the living wage
  9. Engages in practices aimed at weakening collective bargaining powers, eg blacklisting, using temporary contracts
  10. The business actively campaigns against attempts, either through regulation or public pressure, to increase levels of minimum wages
  11. Fails to pay minimum wage to some/all employees