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What you need to know about the living wage

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Make sure you’re clued-up about the living wage if you’re an employer. Our guide has the details

If you’re employing staff, it’s vital to pay them according to the law, and the National Living Wage is a statutory minimum. But to whom does it apply, and what’s the difference between it, the National Minimum Wage and the Real Living Wage? Find out here.

What is the national living wage?

Introduced on a mandatory basis in April 2016 by the government, the National Living Wage is a minimum wage rate for workers aged 25 and above. Note that if you employ someone who’s under 25, they’re legally entitled to the National Minimum Wage instead, and any contracts for payments at lower than that level – currently £8.20 per hour for those aged 21 to 24 – aren’t legally binding.

The National Living Wage is £8.72 per hour at the moment, and you should note that the rate for this as well as that of the National Minimum Wage changes every April. The National Living Wage does not have a London weighting.

When the National Living Wage was introduced the target was for the total wage to reach 60% of median earnings by 2020. As it was set to reach this target by April 2020, a further target of two thirds of median earnings by 2024 was set in 2019.

What about the real living wage?       

There is a living wage that’s different from the National Living Wage, and it’s known as the Real Living Wage. It’s not statutory but paid by employers on a voluntary basis. A further difference is that the Real Living Wage has two rates rather than just one. The first applies across the UK, while there is a different – and higher – hourly rate for London, known as the London Living Wage.

While the mandatory government National Living Wage is based on the relationship between its level and average pay, the rates of the Real Living Wage are determined by a measure of need. The Real Living Wage is calculated annually by the Resolution Foundation and overseen by the Living Wage Commission, in turn appointed by the Living Wage Foundation. It’s based on a basket of household goods and services, drawing on the minimum income standard.

Another difference between the Real Living Wage and the National Living Wage is that it applies to workers who are 18 or over. The rate of the UK living wage for 2020/21 is £9.50 per hour across the UK and £10.85 per hour in London.

Nearly 7000 businesses pay the Real Living Wage voluntarily, including architects and other professional services providers, firms in the construction industry, those in property, and retailers. Employers that choose to sign up to the Real Living Wage are accredited with a living wage employer mark.

What does becoming a real living wage employer involve?

Those who become Real Living Wage employers commit to pay all directly employed staff over 18 the Real Living Wage, regardless of the amount of hours they work. It also applies to third party contractors who work regularly for two or more hours a week for eight or more consecutive weeks a year. However, it doesn’t apply to those contractors who supply a business with products.

If you sign up, there’s an accreditation fee, which is payable according to a sliding scale.

Businesses which have become accredited have accrued benefits, according to the Living Wage Foundation. Its survey results showed that some 93% said they had gained as a business after becoming Real Living Wage employers.

Meanwhile, 53% said it had improved recruitment into jobs covered by the Real Living Wage; and 57% said it had increased the employees’ commitment and motivation. Some 58% reported improved relations between staff and managers.

Internships and the living wage

If you offer an internship in your practice, which could also be called a work placement or work experience, remember that your intern is entitled to the National Minimum Wage if they count as a worker. You can find details of who counts as a worker via the government’s website.

If you sign up to pay the Real Living Wage, the Living Wage Foundation recommends that interns not exempt under government guidelines are paid the real living wage.

The living wages

As an employer, be aware that paying the National Living Wage to employees aged 25 and over is a statutory requirement. Signing up to the Real Living Wage is voluntary, but if you do so, it covers those aged 18 and older. And while a single rate applies when it comes to the government’s National Living Wage, the Real Living Wage has a separate higher rate for workplaces in all boroughs of Greater London.