Should You Pay the Minimum Wage or the Living Wage?

The Minimum Wage was introduced in April 1999. It provides a legal minimum amount of hourly pay for all employees.

Many say it’s not enough. It should be higher and ought to be based on a different rate, known as the Living Wage.

In the 2015 Budget, Chancellor George Osborne announced that the Minimum Wage would be increased to match the Living Wage.

In this blog I explore the differences between the Minimum Wage and the Living Wage.

What is the Living Wage?

According to the Living Wage Foundation, the Living Wage is calculated according to the basic cost of living in the UK. It takes into account costs such as food, public transport, rent and childcare.

Calculated by the Centre for Research in Social Policy at Loughborough University, it’s an  informal benchmark, rather than a precise calculation.

The Living Wage rates are set out here. It’s not currently a legal requirement but seen as something that employers should aspire to.

What is the National Minimum Wage?

The National Minimum Wage is the minimum amount per hour  all employers must pay their staff.

The Low Pay Commission reviews the rates each year and reports to the government each February. The government then sets the rates, based on the recommendations in the report.

The rates vary according to four different categories of worker. Current rates are set out here.

Should You Pay the Living Wage or the Minimum Wage?

The law only requires you to pay the Minimum Wage at the moment.

Nevertheless, some argue that paying the Living Wage is good for business. Rhys Moore, director of the Living Wage Foundation says:

“Our approach is to build the argument that paying the living wage is vital for the worker and their family, but it also makes sense for employers because you end up with more motivated workers, higher productivity and better service.”

Others respond by saying that some businesses simply can’t afford to pay the Living Wage. Higher salaries limit the amount of jobs employers can create.

Neil Carberry, CBI’s director for employment and skills, says

“Paying staff more than they contribute in productivity is unsustainable for a hard-pressed business. If all employers were to start paying the living wage  fewer jobs would be created and unemployment would be higher.”

What should you do?

You must pay the National Minimum Wage. Otherwise, you could be fined up to £20,000.

If you do pay the Living Wage, you may want to apply for accreditation with the Living Wage Employer mark. It’s a bit like ‘Fair Trade’ for employers. This is something you may want to consider.

If you’d like advice on pay rates or any other aspects of the employment relationship, please feel free to get in touch.