What does the Real Living Wage rise mean for SMEs?

The organisation behind the Real Living Wage (RLW) is reporting that the voluntary payment has increased, impacting almost half a million workers.

The Living Wage Foundation says that the hourly rate will increase by 95p to £14.80 in London and by 85p to £13.45 for the rest of the country, with the change effective immediately.

This translates to more than £2,418 more per year in the UK than the legal minimum, and over £5,050 more in London.

The Foundation adds that there are currently 16,000 UK companies signed up to the scheme, including IKEA, Everton FC, Aviva and recent signee, high-street retailer Uniqlo.

What is the Real Living Wage?

The real Living Wage is described as the “only UK wage rate independently calculated based on what is needed to cover living costs”.

It is different from the government’s National Living Wage, which is the legal minimum employers must pay for over-21s (and, as such, is compulsory).

Instead, this is a voluntary payment. Higher than the NLW, it takes into account everyday household costs such as rent and energy bills, childcare and transport, as well as items like a warm winter coat for children, or savings for a financial emergency like a broken boiler.

It also applies to a larger number of workers as it includes anyone over the age of 18 who is working for a Living Wage Employer. Currently, workers aged between 16 and 18 are paid the lower National Minimum Wage rate.

Wider reforms

The news will only have implications for those businesses who have signed up to the scheme; but their number is growing.

The Foundation announced that there have been nearly 2,500 new accreditations over the past year, and that one in seven employees now work for an accredited RLW Employer.

Katherine Chapman, Executive Director of the Living Wage Foundation, said:  “It remains a tough time for low-paid workers, with 4.5 million people still earning less than the real Living Wage and struggling to escape the grip of in-work poverty.”

The Government is pushing ahead with employment reforms that are also hoped to address this, with zero-hours contracts and day-one dismissals set to undergo reforms.

The Work Foundation has estimated that 1.2 million workers would have been protected from “severe insecurity” in the workplace if the unfair dismissal measures had already been in place in 2023 with a six-month statutory probation period.

Why are SMEs concerned?

However, while the added protections for workers are largely being praised, businesses are voicing their concerns about who will foot the bill.

Zero-hours contracts reforms have come under particular fire from recruitment companies who want agency workers exempt from the changes.

Paul Seath of legal firm Bates Wells, told People Management that the proposals are aimed at ending exploitation but might have the “unintended consequence” of “…creat[ing] greater uncertainty for workers by in effect encouraging employers not to engage them.”

For many SMEs, they are simply concerned about where to find the extra money to meet these salary expectations; as well as the new sick leave and parental rights rules. Especially at a time when costs are rising and we are waiting on the outcome of the Autumn Budget.

While the RLW isn’t compulsory, accredited employers must look at their budgeting to see what they are able to do. This is at the same time as reviewing their contracts, payroll and HR processes, and shift workers, before the first employment reforms become law.

It is undoubtedly a tough time but businesses need to find a balance between the wellbeing of their employees and the health of their business as the two are inextricably tied.