From April, the National Minimum Wage and National Living Wage will see above-inflation increases. But although the increases have been welcomed by the Living Wage Foundation, they don’t yet meet what the organisation calculated in October 2023 as being the ‘Real Living Wage’.
‘A rise in the statutory National Living Wage from April is welcome news for low-paid workers, but it still falls short of the voluntary Real Living Wage,’ says the foundation’s director Katherine Chapman. ‘It is the foundation of a dignified, decent life.
‘The hardships faced by the lowest paid aren’t easing – 60% of the 3.5 million low-paid workers have visited a foodbank in the past 12 months; over a third (39%) regularly skip meals; over a third (39%) have been unable to heat their homes. That isn’t sustainable. Employers can protect their staff from rising prices by paying a Real Living Wage based on the cost of living.’
Nonetheless, Chapman is hopeful of progress: ‘We’ve seen thousands more employers commit to the Real Living Wage since the start of the cost-of-living crisis – over 14,000 to date – so while it is an incredibly challenging time, employers are stepping up to do the right thing by workers and families.’
As clients consider the impact that paying a higher Real Living Wage might have on the bottom line, it’s worth bearing in mind the benefits it could bring to their businesses, not just to the employees.
For example, higher wages can unlock spending power. ‘If a lot of people were being paid the Real Living Wage, you then release a lot more consumption, income and demand back into the economy,’ says Sharath Martin, senior policy manager at ACCA.
‘Being an accredited Real Living Wage employer will be key to bringing more customers on board’
For Anna Purchas, a senior partner and regional chair at KPMG, paying staff the Real Living Wage will help businesses meet several imperatives.
‘Some businesses will argue that increased wages hit their bottom line, but there is ample evidence to suggest the opposite in the shape of higher retention, higher productivity and attractiveness of the business’s products or services to customers and investors.
‘It may not be possible for every business, but we have found with our SME clients that it is certainly not impossible to explore the feasibility of paying the Real Living Wage,’ she says.
Reputation and recruitment
The Living Wage Foundation has found that 94% of accredited employers have seen business benefits, with 87% seeing improved reputations, 66% saying it helped differentiate them from other businesses, and 62% witnessing improved recruitment.
Purchas also addresses a perceived myth that only big businesses can afford to pay the Real Living Wage. In fact the majority of the current 14,000 accredited employers paying the Real Living Wage are classed as small businesses.
‘We have some good testimonies around the benefits that accreditation brings to their businesses – not least, how it can form part of their ESG agenda,’ she says.
‘Amplifying the ways in which being an accredited Real Living Wage employer can form a key plank of the S in an organisation’s ESG strategy, and will be key to bringing more customers on board. It’s a significant way to boost diversity and inclusion, and also to help smaller businesses in a supply chain to become accredited.’
Advisers step in
So how can practitioners support their SME clients?
‘SMEs need good advice to help them understand the structure of statutory minimum wages and the implications of an increase so they’re better able to manage it – something a lot of organisations are not doing,’ says Clive Webb, ACCA policy and insights team’s head of business management.
‘Do they understand it’s a compliance and tax issue, not an HR issue?’
‘Practitioners need to discuss with their clients if they have thought about this; have they understood the implications of an increase? Do they understand it’s a compliance and tax issue, not an HR issue?’
Lee Murphy, managing director of The Accountancy Partnership, advises: ‘It’s important that SMEs familiarise themselves with the tax benefits – staff salaries are an allowable expense for which you can claim tax relief.’