The Summer Budget announcement that a new national living wage will come into play from April 2016 elicited a range of responses: a welcome step in the right direction to nudge up pay for workers struggling with the rising cost of living; reservations surrounding the limitations of the new rate and those workers who will not benefit from it; concern that it will be a prohibitive financial burden for certain businesses and sectors; fears that it could impact job growth and change the make-up of workers in low-pay sectors; and even, in some quarters, confusion.

Louise Fordham

This confusion can be attributed partially to the name bestowed on the new statutory rate, which appears to be an amalgamation of the terms used for the existing national minimum wage and the Living Wage Foundation’s living wage.

Yet the living wage differs from the national living wage in some fundamental ways:

  • The living wage is an independently calculated rate based on the cost of living in the UK, putting it at £7.85 an hour, 65p above the national living wage launch rate of £7.20.
  • The living wage takes into account the higher basic cost of living in the capital, with an hourly London living wage rate of £9.15.
  • The national living wage only applies to workers aged 25 and over, whereas the living wage is recommended for all staff over 18.
  • The living wage is a voluntary rate that employers can choose to adopt rather than a legal requirement.

From a staff engagement perspective, the final point is perhaps the most significant. Where financially possible, visibly committing to earnings above the statutory minimum could have a positive impact on staff loyalty and motivation. The higher rate of pay and increased awareness of employer support may also lessen the weight of employees’ financial concerns, which can have a positive effect on wellbeing and productivity.

With 18% of employees losing sleep over financial worries, according to the Barclays C&ES report Financial wellbeing: the last taboo in the workplace?, published in May 2014, financial wellbeing is not an issue that can be ignored, but nor is it likely to be remedied through higher pay alone.

A well-conceived benefits package can stand alongside pay, be it the national minimum wage, national living wage, living wage or above, to support staff in alignment with employers’ organisational goals.