Cleaning up the Foreign Office, with a Living Wage…?.

By Andrew Knorpel 22 October 2015

The cleaners were not terribly impressed with the new Foreign Secretary, Philip Hammond, earlier this week when news broke that their letter to him requesting a London weighting Living Wage, led to them being put under disciplinary investigation by their employers and others being chosen for redundancy. This is not quite the path to an increased wage rise that was envisaged by the Living Wage Foundation or the government in its new proposals for increased rates of pay from April 2016.

The living wage continues to raise concerns for many employers and workers, especially those who are paid at the current national minimum wage levels. There is some confusion however, over the terms and the government proposals around the living wage. Here’s a quick summary of the key issues and terms you may need to know:

1. The current National Minimum Wage is £5.30 per hour for 18 to 20 year olds and £6.70 per hour for those 21 years and over.

2. The National Living Wage is proposed by the government and the living wage is promoted by the independent action group the Living Wage Foundation. There are significant differences between the two.

3. The National Living Wage is the increased amount of minimum pay that all employees over 25 years will be entitled to as of April 2016. The Government calculates and sets this rate by liaising with the Low Pay Commission, which is an independent advisory body sponsored by the Department for Business, Innovation and Skills. The rate is based on median earnings and will be set at £7.20 per hour from April 2016.

4. In contrast, the Living Wage Foundation states that its proposed living wage is calculated on the basis of the cost of living in the UK, which is evaluated and updated annually. In essence, it is an aspirational target that employers can voluntarily endorse and pay. Unlike the Government’s calculations, the Foundation recognises that the cost of living differs across the country and for this reason the rate is higher in London. As at 1 October 2015, the living wage is £7.85 per hour in England, Scotland and Wales and £9.15 per hour in London.

5. Whilst many companies do elect to pay their workers in line with the Living Wage Foundation’s calculated living wage, this is only on a voluntary basis. The Living Wage Foundation counts over 1,700 employers as voluntary subscribers to its living wage policy, they offer accreditation and recognition to employers paying their Living Wage.

Summary: The National Living Wage, will be mandatory and will increase hourly pay from £6.70 to £7.20 (for those aged 25 and over) from April 2016. This will represent a considerable rise and employers should start planning the funding of this increase.The Financial Times estimates that paying the National Living Wage could cause wage bills to increase by as much as 3.4% in the accommodation and food sectors.

Action: As with any potential increase in the wage bill, employers should be reviewing their workforce and assessing the likely impact this increase may have. Employers who employ only higher earners are likely to see little impact; this will be in contrast to employers who have many low earners in the workforce. Employers may decide to pass the cost on to consumers or they may need to look at changing their staffing structure going forward…

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