Could you afford to pay your staff an extra £2,247 per year?
20th Nov 2018
After it hit headlines in November 2018 that some companies are paying their staff £9 an hour, I felt I needed to open the conversation about the Real Living Wage. Could this be a realistic wage for all employees in Belfast in 2019? Is this affordable?
What is the Real Living Wage?
The real living wage is calculated from independent studies on what people need to live on. This is voluntarily paid by 4,700 businesses across the UK, meaning over 180,000 employees have benefited by receiving a pay rise of 2.8% in November 2018. For the first time, employees will receive £9 an hour compared to the national living wage of £7.83 an hour (soon to change in April 2019, read more below).
The real living wage started in 2011 after concerns of workers on the National Living Wage (NLW) not receiving a pay they can live on. As the NLW (Over 25’s) is not calculated according to what employees and their families need, rather it is a target to reach 60% of median earnings by 2020. Under current forecasts this means the NLW will rise to £8.62 by 2020 and reaching £9.19 in April 2022.
See below a diagram of the history of UK Wages from 2003 to today.
Diagram from the Real Living Wage website
How is the Real Living Wage calculated?
The Real Living Wage is set annually by a formula based on the changes to living standards, calculated by the Resolution Foundation and overseen by the Living Wage Commision. The Commission creates a decision-making forum to resolve judgements about how to incorporate policy changes and new sources of data. In addition, they advise on how to manage extreme variations from general rises in living costs each year on how this will affect workers wages.
The Living Wage commission's aim -
“To produce robust and sustainable Living Wage rates based on best available evidence about living standards in London and the UK”
spend to feed, clothe and house themselves.
Annually the rates are calculated by the Resolution Foundation in a number of key areas, a core basket of goods and services draw; comparing goods from different national stores in different locations around the UK and from the previous year’s prices. The basket of goods draws on the Minimum Income Standard to identify everyday living costs to achieve an acceptable standard of living. In addition, the study accounts for housing, travel and childcare costs in a variation of family models.
Why pay the Real Living Wage?
Obviously, for most businesses, this is extra costs. For one worker who’s on the National Living Wage (£7.83 an hour), working 40 hours a week earns £15,033.60. If a company was to change to the Real Living wage initiative (£9 an hour), the cost for that same employee would be £17,280 a year. Can small businesses afford an extra cost of £2,247 a year per employee who is over 25 and working full time?
Although, the National Living Wage will increase to £8.21 in April due to the recent budget announcement by the chancellor. This would calculate to £15,763.20 annual salary, £1,516.80 difference compared to the Real Living Wage employers.
The Real Living wage suggests that 93% of their companies have benefited since accrediting. So, how can this accreditation help a business?
- 86% have said their business reputation improved
- 75% increased retention rates and motivation with employees
- It has helped 64% differentiate themselves in their industry
- It has improved 58% relationships between manager and staff
One of The Real Living Wage Businesses, IKEA, comment on the new accreditation-
“Introducing the Living Wage Is not only the right thing to do for our co-workers; It also makes good business sense. This is a long-term investment in our people based on our values and our belief that a team with good compensation and working conditions is in a position to provide a great experience to our customers.”
It seems to be having an impression on the next generation as 93% of University Students would want to work for a Real Living Wage employer. Obviously, everyone would like a pay rise, is it realistic in the Northern Irish market today?
What are the potential business changes from increased salaries?
- Companies face lower profits due to the increased costs of workers.
- Increased employment of younger worker to keep costs down (Aged 24 and younger)
- A potential reduction in benefits, hours, bonus’, overtime and training
- Increased costs of goods or services to cover the extra costs
These changes to a business could create a sense of uncertainty within the business and possibly cause staff to leave due to job security queries. This does press the point of not joining the scheme unless your company can still function effectively with an increase of workers costs.
Could companies in Northern Ireland afford to pay the Real Living Wage?
The LPS have reported that some sectors, including convenience retail, social care, and hair and beauty businesses are at, or approaching a tipping point at which rising costs may have effects on employment.
In addition, the current state of low footfall and businesses closing in Belfast city centre due to the Primark fire could show that it’s not realistic for physical stores especially in city centre Belfast in its current state.
Keep in mind benefits that a company can offer, other than salary. Examples of benefits in kind which don’t count towards NMW pay are:
- a car
- your employer’s contribution to your pension fund
- help with removals
- medical insurance
- lunch vouchers
- childcare vouchers
- Flexible working hours
In addition, salary isn’t always the most important aspect of a job. Do you enjoy your job? Let us know in the comments on your thoughts of more companies getting involved in the Real Living wage in Northern Ireland.