The cost of living in the UK continues to bite hard into people’s lives. The UK government is doing its bit in providing financial help to those who need it most. Many organisations are doing their bit too, in signing up to pay its employees a ‘real living wage’. But what is the real living wage, and how can employers who aren’t doing it get onboard?

Let’s uncover the many benefits associated with employees receiving the real living wage in this article. These benefits include employee retention, employee experience, financial wellbeing and company brand reputation.

The differences between the types of minimum wage

First things first: Let’s unravel the differences between the minimum wage, the national living wage and the real living wage.

The minimum wage is mandated by the government and applies to employees aged 22 and under (but older than the school-leaving age of 16). The minimum wage is reviewed and amended every year, usually at the beginning of April.

There are different amounts depending on age and employment status, so an apprentice or under-18 earns around half as much per hour as a 21-22-year-old. The BBC says the minimum wage benefits about two million people.

The national living wage is also statutory and covers employees over 23. The minimum wage and national living wage must be paid by employers, and anyone who pays below the thresholds are subject to a HMRC fine.

The thresholds for both wage standards are determined by the UK government, advised by the Low Pay Commission.

The real living wage is voluntary. The minimum amount is independently calculated according to the cost of living based on ‘the best available evidence about living standards in London and the UK’. There are two thresholds: one for London and one for the rest of the UK. The minimum age for qualification is 18 or over.

Is a real living wage necessary?

With inflation in the UK set to top 13%, and interest rates on the rise, the cost of living is significantly high. Every penny will help. With the real living wage higher per hour than the national living wage and minimum wage, it's not difficult to see how it’s better for employees.

This can be measured in physical wellbeing terms, with Food Standards Agency research into household food insecurity. According to this study,food is often the first expenditure to be cut when disposable income is tight. Low wage structures also affect mental wellbeing. Negative effects may manifest themselves as anxiety, damaged relationships with family and friends, and depression. The Living Wage Foundation found that 63% of poll respondents believe the real living wage would improve their mental health.

Financial wellbeing is another area that could be improved by the real living wage. 47% of UK employees worry about money. Workplace poverty may be alleviated by voluntarily paying workers more than the national living wage, this might help employees reduce living costs and gain more control over their finances.

Signing up to the real living wage initiative and committing to paying employees more per hour than government guidelines is a great start. Some employers may wish to go beyond this and provide additional supports to employees, such as hardship loans. 

Is there anything in it for you as an employer?

There are more than 11,000 accredited employers, according to the Living Wage Foundation. These organisations voluntarily pay a fairer salary to their employees based on the cost of living.

The Foundation surveyed its network of accredited members, who say that providing a real living wage ‘improved the reputation of the business’ (83%), ‘increased motivation and retention rates for employees’ (75%), and ‘improved relations between managers and staff’ (58%).

The value of improving employee experience by increasing employee salaries appears to be a no-brainer. Everyone must surely be taking part as a real living wage organisation. Actually, many companies are not seeing the benefits. Some companies take shareholder opinion into account so that not every worker is paid the real minimum wage, while other companies are voluntarily paying more.

It has been reported that the UK is poised to become one of the worst members of the G7 for real wage growth. This pessimistic forecast may be reversed by improving the financial wellbeing of employees, which in turn helps to improve their physical and mental wellbeing.Some organisations may wish to consider the real living wage as they focus their efforts on enhancing employee experience to deliver higher levels of productivity, business growth and happiness. Employers who adopt the voluntary real living wage as part of their employee experience strategies may grow as businesses, and help the UK economy along the way.