HR & Management

Should you pay the living wage?

4 min read

06 November 2012

The living wage has risen by 25p this year to £7.45 outside of London and £8.55 inside London. There's a business case for paying it, so do you? Plus: vote in our poll.

While the legal minimum wage is £6.19 for adults over 21, this is significantly less than the living wage, the rate of pay designed to enable employees and workers to afford a basic standard of living.

In the last year, the living wage has increased by 25p to £7.45 outside of London and £8.55 inside the capital.

Yesterday, Mayor of London Boris Johnson joined the Labour party in endorsing the living wage increase, saying that paying employees that little bit more makes all the difference.

“By building motivated, dedicated workforces, the living wage helps businesses to boost the bottom line and ensures that hard-working people who contribute to London’s success can enjoy a decent standard of living.”

It’s easy for large businesses to sign up to paying the living wage, as for most of their employees, they already have a higher salary. But is it realistic to ask all businesses – including micro and small businesses – to pay the living wage?

Currently, one in five British workers is paid less than the living wage, say accountants KPMG.

“Our research really lays bare the extent of the problem of low pay in Britain,” says KPMG’s head of corporate affairs Marianne Fallon. “Times are difficult for many people, but of course those on the lowest pay are suffering the most, Paying a Living Wage makes a huge difference to the individuals and their families and yet does not actually cost an employer much more.”

As an be expected, the jobs that are least likely to be paid the living wage are bar staff (85 per cent) and waiters/waitresses (90 per cent). Yet, according to research by The Resolution Foundation, a think tank, paying the living wage – rather than the national minimum wage – in bars, restaurants and retail would add just 5-6 per cent to the total wage bill.

Real businesses

But it isn’t necessarily an easy choice for a small business to make, as Mike Cherry, policy chairman at the Federation of Small Businesses (FSB), explains: “Every employer would want to be as reasonable as they possibly can, but in the current economic climate, it is not going to be possible for those sectors that have traditionally been unable to pay the national minimum wage.”

Neil Carberry, director for employment and skills at the CBI, says that paying the living wage should not be forced upon an already-challenged economy: “Some firms may choose to pay more if they can, but this must be their choice based on their own business situation.”

The business case for paying the living wage (rather than the national minimum wage) is simple: happier workers. But is it fair to put an extra burden on small firms?

John Walker, chairman of the FSB, points out that often SMEs don’t have a choice: “Small firms want to pay more, but their cash flow is constrained by continuing rising costs. Many small firms will already pay more than the living wage, but for businesses on tight margins, they just would not be able to afford it in the current economic climate and a rise in wages could lead to recruitment issues and job losses.”

Entrepreneur and Real Business columnist Jan Cavelle has also shared her views on the living wage in her column this week.

Now it’s your turn. Do you pay all of your staff – including cleaners, security guards, etc – the living wage? Vote below. (Answers are anonymous, so be honest!)

Do you pay the living wage?

Poll is now closed.

Yes 42.31%
No – because I cannot afford to 48.08%
No – because I don’t need to 9.62%