How do you calculate a ‘living wage’?

How do you calculate a ‘living wage’?

The Government has introduced its ‘national living wage’ which is estimated to affect 500,000 Scottish workers. But is it really a living wage? And how is such a thing calculated? We spoke to the Scottish Living Wage Accreditation Initiative, to find out.

The ‘national living wage’ has been set by the Government at an initial level of £7.20 per hour, for over 25s.

But the full Living Wage, which is set by the Living Wage Foundation, is calculated differently, and is currently set at £8.25 per hour across the UK (£9.40 in London).

Why these differences? The ‘national living wage’ was set as a percentage of median income. Starting at 55%, it aims to rise over time to 60% in 2020.

The Living Wage Foundation’s £8.25 figure is made based on a cost of living calculation, looking at the price of a ‘basket’ of household goods and services.

Reviewed each November, it aims to provide enough for a basic but adequate standard of living and includes such costs as household fuel bills, travelling to and from a place of work, and a family holiday.

Decisions about what to include in this standard are made by groups comprising members of the public. The Living Wage is therefore rooted in a social consensus about what people need to make ends meet.

What do I have to do, as an employer? The ‘national living wage’ is mandatory. Effective 1 April 2016, £7.20 is the least per hour which over 25s must be paid by law. Effectively this is a new top band of the National Minimum Wage for the over 25s.

The Living Wage is a voluntary rate which employers choose to commit to paying. By making this commitment, an employer demonstrates that they are going beyond the requirements of the law because they believe in best practice and fair work.

Julie McGahan, Living Wage programme manager for Scotland said: “There are now over 500 accredited Living Wage Employers in Scotland and over 2,000 in the UK as a whole. This is a growing movement of like-minded employers united by their belief that all of their employees - including contracted staff such as cleaners, catering, security and maintenance - should be paid a wage that they can live on. 

“As well as the obvious benefits for employees, independent research shows that paying the Living Wage also comes with impressive business benefits in the form of improved productivity, recruitment and retention, and reputation. Of course, by putting more money in people’s pockets we can also drive up demand in the economy which is good for everyone’s business.”

Find out more about the Scottish Living Wage Accreditation Initiative, and the accreditation scheme they offer.