What’s happening with the Living Wage?
12th August 2024
Samantha Gee
You’ve probably seen news of the new Labour government’s commitment to strengthen the Living Wage. So, what does all this mean?
First off, I’ll share a recap of the difference between the National Living Wage, and real Living Wage. Both can be referred to as the ‘Living Wage’ which can be confusing.
What is the National Living Wage?
The National Living Wage (NLW) is a regulatory requirement set by Government with recommendations from the independent Low Pay Commission.
The NLW currently applies to adults above 21 years of age. It’s what used to be the National Minimum Wage. A lower rate applies to those aged 18 – 21 and that’s still termed the National Minimum Wage.
When Government (and consequently the media) talk of the ‘Living Wage’, this is usually what they mean.
The goal has been for the NLW to reach 2/3 of national median income by 2024, and so the focus is on low pay relative to median pay.
From 1 April 2024, the NLW increased by almost 10% to £11.44 per hour.
What is the real Living Wage?
The real Living Wage is voluntary and represents what is needed for a reasonable standard of living. Independently calculated by the Resolution Foundation based on a basket of household goods and services, overseen by the Living Wage Foundation.
This Living Wage was first set in 2016. It is often referred to as the real Living Wage so as not to be confused with the National Living Wage.
There’s around 15,000 Living Wage Employers paying the real Living Wage. It applies to employees, and regular third-party contractors such as caterers and cleaners.
In October 2023 the real Living wage increased to £12 nationally, and £13.15 in London. Employers have six months to implement.
What changes have Labour made?
The Labour Government has pledged to ‘Make Work Pay’ and ensure the NLW is a genuine living wage.
They have committed to extending the NLW to all adults and will continue to reduce the minimum age that the NLW applies to. This will be phased in over a number of years so as not to impact youth employment or participation in education and training.
Government have also updated the Low Pay Commission’s remit to consider, not just the relationship between the NLW and median earnings, but also the cost of living too (for the first time).
As business secretary, Jonathan Reynolds, states, this is ‘great progress towards a genuine living wage, whilst balancing inclusive growth for workers and business’.
However, 2025 is being described as a ‘holding year’. Inflation is currently tracking below pay increases, and so the Low Pay Commission’s focus will be on preserving the value of the NLW at 2/3 of median earnings rather than their new ‘cost of living’ remit.
Hence the headlines: ‘National Living Wage to increase in line with median earnings’. This simply means that the increase for the NLW will track the increases being applied to salaries generally.
This is broadly in line with the approach planned by the previous government and actually a significant decrease in the growth of the NLW compared to previous years.
What does this mean for employers?
The focus on improving the disparity between the highest and lowest paid workers is not new and the Low Pay Commission’s remit is extending to ensure everyone has a reasonable standard of living.
NLW increases for April 2025 are likely to be broadly the same as the previous LPC estimates of a 3.9% to £11.89.
The Resolution Foundation predict the greatest impact will be the faster pay rises for 18 – 21 year olds, as the National Minimum wage is brought closer to the main NLW rate.
The ‘magic’ in all this is in creating affordable pay structures that retain salary differentials, and investing in training to bring a better return on the investment required. Not easy I know, especially in sectors disproportionately affected such as retail and hospitality.
Good reason to get your reward strategy sorted, with internal career levels and pay aligned to growth in contribution, and communicate your approach openly in an understandable way.
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If you’d like help with your pay and reward strategy, our implementing pay structures based on career levels and market data, please do get in touch for an initial conversation.
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